Dyno horsepower is the measured amount of horsepower a vehicle produces when placed on a piece of equipment known as a dynamometer. A measurement device (typically a computer) is attached to measure the engine’s RPMs over a specific speed range. The determination of horsepower is derived via a physics equation: F=MA, where F is the force, M is the mass, and A is the acceleration. Simply stated, the force produced is equal to the product of a known weight (that of the vehicle’s piston) times its acceleration (how fast the piston is moving within the cylinder). Once the force is calculated, it is converted into horsepower and torque figures.
For more info, see Car Tuning: Turbo Tips