I ran into this error while working with Smarty caching. This error is caused by a "dynamic" block function not being registered with Smarty. A block function is a function which essentially will take a section of content and execute a function on that content. Because of this, Smarty will not cache it. Notice in this example the function simply returns the content. Because it was defined as "dynamic" you can use the Smarty dynamic tags to wrap content and avoid the caching engine.
This is not a default tag in Smarty and will fail if you have not registered the block function as provided in the example.