I believe this is incorrect.
Normally, when you receive the one 'free' domain registration for life, you would receive an extra domain credit each year, just before your anniversary date, which you can use to renew your original domain or perhaps to register a totally new domain and let the original one lapse. I imagine the same thing would happen with the 5 'free' domain registrations, that is, you will receive 5 extra domain registration credits each year.
Of-course, for the definitive answer to this question you should ask DreamHost support.
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