Status : Commited In Trunk (Since 2.61 / Rev 41723)
Dynamic Paint is a new tool for Blender I have been working on since July 2010. Improving and finalizing it was also one of the Blender Foundation's Google Summer of Code 2011 projects.
The basic idea of Dynamic Paint is to allow any object or particle system to become a brush that can "paint" (various types of output) on other object's surfaces. Basically it enables a whole new way for Blender objects to interact.
This example video quite much tells it all:
Dynamit Paint currently features:
Vertex data and image sequence output formats.
Various surface types such as color, wetmaps, displacement, vertex weight and waves.
You can paint with mesh objects and particles using variety of settings to tweak brush influence. You can even use materials/textures to define paint influcence and color. This includes both surface and volumetric materials.
You can paint on any mesh object that has constant face count. It can be freely deformed and animated.