First off, I assume you are talking about skeletal animation (especially 3D graphics) since animation blending pretty much only applies to skeletal animation. If you are talking about 2D sprite-based animations (you didn't specify in your question) then you can pretty much forget about animation blending.
With that out of the way...
Am I right in thinking that animation blending is the process of
smoothly transitioning between these by generating dynamic animations
That is pretty much what the term means, yes. That phrase "generating dynamic animations" is a tiny bit misleading however; that brings to mind procedural animation and that isn't exactly what you're doing.
"Animation blending" is when you transition between two animation clips by using a bit of both animations with the weighting of one clip going up while the weighting of the other clip goes down. This works best with skeletal animation, so that the rotation of each joint is set to a midpoint between that joint's animation in two different animation clips, with the weighting of each clip changing over time. That is, you'd calculate the rotation of each joint something like:
rotCombined = weightA*rotA + weightB*rotB
Now, while animation blending works best with skeletal animation, you can also do it with vertex animation (eg. MD2). This is more of a historical note because few modern game engines use vertex animation, but you can set the vertex positions in the same way, as a weighting between the vertex position in two different animations. This could result in some weird looking interpolations (eg. parts of the mesh collapsing or turning inside-out) if the two animations were too different, whereas skeletal animation ensures that the various parts of the mesh stay whole.