Dry hopping is when you add hops directly to your fermentor or keg. Usually the hops are added to the secondary fermentor to minimize the risk of contamination because the hops will not be boiled like your beer was. By the time the beer is in the secondary fermentor the risk of bacterial infection is less due to the yeast, alcohol and lack of oxigen. Dry hopping does not add bitterness to your beer, just great flavor and aroma. I usually like to keep the dry hops in my secondary fermentor for about 2 weeks just before bottling. It is said that hops have a natural antibacterial property so just pitch them right in out of the package (but try not to let them touch any unclean surface). If you like the smell and taste of hops, then pick your favorite and throw it in there.
As a homebrew shop owner I know that hop pellets are not always handled as clean as some would expect. Therefore I nuke an ounce to ounce and a half of pellets in a cup of water until they are steamy and look like pea soup. I pour this mixture into a santized glass carboy and rack the beer on top. After a week I slide the carboy into the walk-in to settle out the hops overnight. As I keg I don't worry that the yeast is also settling out. I then hang a sanitized nylon grain bag inside the mouth of a keg to catch any hops that might be sucked up in the siphon hose.
I have always just trown them right into my secondary and never had a problem. But Tha Beerman brings up a great point that you never know how the hops were handled before you bought them. Does the "Pea Soup" method alter the hop flavor at all?
Thats why I use a little extra in case I lose some aroma in the microwave. I'm a hop head and never think I have enough. Buddies say it's intense. My latest batch of IPA I used 1-1/2oz of Amarillo, (Cascade on steriods) When I first bought Wichita Homebrew Supply I was very tedious and repackaged all my hop pellets in 2oz vacuum sealed packs, which I forced my customers to buy. As I have a small part time shop they all became friends so now I sell exact amounts to suit and only vacuum re-pack odd styles.
View the "what's your favorite recipe thread". There is a brewer that wants to know where to find amarillo hops. While you are there check out my IPA recipe. It looks cray, but its great for any hop head such as myself.