The Don't Repeat Yourself (DRY) principle in software development emphasizes writing code once and not repeating it to improve maintainability. In Terraform, dynamic blocks can be used to create repeatable nested blocks within a resource, adhering to the DRY principle. These dynamic blocks iterate over child resources and generate nested blocks for each element of that resource. By using dynamic blocks, repeated attributes are removed, leading to cleaner code that is easier to maintain.