On-the-fly means that new fact sheets, tags or subscription roles can be created on-the-fly. If you like to add an IT component in an application fact sheet but this IT component does not exist yet, you can create directly a new IT component (on-the-fly).
If you like to add a tag to an application but this tag does not exist yet you can just create a new tag (on-the-fly).
As an Administrator you can also allow that a person who wants to subscribe for a fact sheet can create a new role type on-the-fly.
As an Administrator you can control on-the-fly creating and tagging.
Have a look into the Administration section under Settings. Here you can define whether new tags or role types can be created on-the-fly or not. Don't forget to save the settings.
Under Customization you can define for each fact sheet type whether a new fact sheet can be created on the fly or not.