What does the argument/parameter “dynamic_padding” do exactly in the Alacritty terminal emulator?

The Alacritty config file lists an argument/parameter dynamic_padding to:

“Spread additional padding evenly around the terminal content.”

What exactly is this “additional padding?” Where would it come from?

That dynamic padding is extra space around the boundaries of the actual terminal area. It's opaque and the color of your default terminal background. Programs you run won't be able to display anything there.

In the illustration below, Alacritty is running neovim. The lighter shades of grey are the terminal; Neovim has full control of that. The dark black padding around the edges is dynamic_padding, and defaults to the color of your terminal background. Neovim, and any other program you run, can't modify the content/color of this padding.