1A. The demo theme's dynamic block setup uses this "tag" for placing certain content in the dynamic block region: "dynamic" (Example: http://www.themesnap.com/theme-demos/magazine-plus/node/7 - View the "tag" at the bottom of the article)
1B. To change the name of this to "featured" or even assign specific category articles to only display here, you need to visit this page within your admin section: http://<yoursitename>.com/admin/build/views/edit/news_items
1C. On that page you'll see under "Filters" a filter called "Taxonomy Term." You'll also see that it's set to "dynamic," the tag mentioned in (1A) above. You can click the "Taxonomy: Term:" text link here and change the taxonomy term to reflect where you want the dynamic block articles pulled from (this could be any other category name that you're using). Then click "Update" and "Save"
1D. Setting the slider effects may be tricky since there are so many options within the Dynamic Display Block (ddblock) module. If you want your slider transitions to occur more smoothly, please follow the same setup as we've done within our Magazine Plus demo. Screenshot: http://www.themesnap.com/theme-testing/images/dd-block.jpg
Front Page - Featured Blocks Setup
2A. Changing the 4 featured articles below the top slider on the front page is easy as well. Simply log in as "admin" (the first user created that has admin privileges) if you're not already logged in, then hover over the front page featured article images (any of the 4 displayed). You should now see three links display above each of the front page (4) featured images called "Edit, Export, and Clone" when you hover over any of the 4 images. Click on the "Edit" link.
2B. Now the steps are the same as (1C) mentioned above. Simply change the "Taxonomy: Term" under "Filters" to reflect the article placed there from your custom categories. Note: There are 4 different blocks, meaning you can show up to 4 different category or tagged articles for each one of these blocks if you wish.