Dynamic lighting with 3D objects is somewhat different from 2D. As we actually have depth and details to work with, we can apply some of the techniques that we use to generate static lighting and shadows in a real-time fashion. We will be exploring these in more detail in the upcoming sections.
Dynamic generation of lightmaps implies that you do the rendering as performed by 3DS Max and other tools in-engine instead. This is something that you would only want to use on high-end devices, as it means that you'd be doing ray-tracing and similar techniques in real time. By limiting the scope of the rendering algorithm you use (for example, limiting the number of times the ray can bounce off a surface, plus limiting the number of rays and interpolating), you can optimize the algorithm to fit the hardware's capabilities.
You can start off with the general diffuse map, applying a normal map as needed (in the case of flat sprites or for baked features, for example). You...