All types of microphone incorporate some form of diaphragm. This is a small surface which vibrates in sympathy with the sound pressure waves reaching the microphone. However, dynamic and condenser mics vary in how these vibrations are used to produce an electrical signal.
In a dynamic microphone, sound is converted to an electrical signal by the vibrations of the diaphragm causing the vibration of a coil in a magnetic field, effectively an electrical generator on a very small scale. As this produces sufficient signal level for direct connection to a PA system, no amplification of the signal is required within the mic. Dynamic mics are most useful for close-proximity applications (i.e. 0 to 15 cm) such as lead vocals, guitar amplifiers, etc.
In a condenser mic (also called a capacitor mic), sound is converted to an electrical signal by the vibrations of the diaphragm causing changes in the capacitance of a charged capacitor. This is achieved by the diaphragm itself being one of the plates of the capacitor. As this produces a very small signal level, some initial amplification of the signal is required within the mic itself. This internal amplifier may be powered either by an internal battery or by power supplied from the mixer. Condenser mics are most useful for larger distances between the sound source and the mic (i.e. 15 cm upwards), such are encountered with lecterns and with overhead miking of drum kits, choirs, theatre stages etc. They can be more prone than dynamic mics to making a "popping" sound when used close-up with a "breathy" sound source such as a voice or a wind instrument, though this problem can be reduced with the windshield fitted. They are capable of a higher quality sound than dynamic mics, and the best versions are therefore extensively used in studio recording work. They are the best type of microphone for use with an Audio Frequency Induction Loop System (AFILS).