Recently I have been working to improve Dynamic Paint functionality and allow painless Ptex (Per-Face Texture Mapping) integration in the future.
This next step is _vertex painting_. Basically you'll be able to select canvas output type. Available options will be vertex, Ptex and image output (current dp). Vertex output allows you to paint vertex colors, vertex groups and displaces.
Operating on vertex level makes things easier in many ways. First of all you don't have to unwrap any UV data or load image sequence textures to make it work. It's just clicking bake and seeing the results. Even displace will happen directly by the Dynamic Paint modifier.
Negative things compared to image textures are limited resolution and rendering options. That's why vertex stuff isn't going to replace current Dynamic Paint but to be an alternative way. Hopefully Ptex will be the ultimate Dynamic Paint solution. :)
I made a small demo of vertex group/weight painting. A grass worm.
In that video grass particle length is defined by a Dynamic Paint generated vertex group.
Please note that this is still in very early stage of development. You shouldn't expect any kind of test versions for several weeks.