A domain registration is for a period of 1 year. Once registered it cannot be undone (this is not something specific to Dreamhost, it's how domain name registrations work).
If you've used the free domain registration Dreamhost provides, you have that domain name for 1 year. After one year you can decide not to renew it. You can then use your free domain registration to lenghten any other domain name you already own (or to register a new domain).