Dynamic range is a measure of the range of tones the sensor can capture. Cameras with low dynamic range will often show 'blown' highlights or blocked-in shadows. This test is carried out in controlled conditions using DxO hardware and analysis tools.
Dynamic range is measured in exposure values (EV). The higher the number the wider the range of brightness levels the camera can capture. This falls off with increasing ISO settings because the camera is having to amplify a weaker signal. Raw files capture a higher dynamic range because the image data is unprocessed.
Pentax K-1 dynamic range charts
JPEG dynamic range analysis: At the lower sensitivity values the K-1 produces JPEGs with unusually high dynamic range.
Raw (converted to TIFF) dynamic range analysis: Pentax manages to eke out a little more dynamic range from the K-1's raw files, indicating that they have an even broader range of tones than the impressive JPEGs and should stand up well to post-capture contrast adjustment.