Yup. I think the ad copy says something along the lines of a free domain registration for the life of your hosting account.
So to beat a dead horse:
1. If you only have one domain, you can keep renewing it for free every year as long as you maintain a hosting account here at DreamHost.
2. If you want additional domains, you'll have to pay for those at $9.95 a year. As you say, this is where you might be able to save money by using a third-party registrar. BTW, it's too late for us, but if you're a new customer, you can use a promo code that will get you some extra free "lifetime" domain registrations (again, that's for the lifetime of your hosting account).
Free unique IP and $67 off with code [color=#CC0000]LMIP67[/color] or use [color=#CC0000]LM97[/color] for $97 off. Click for more promo code discounts