For steel, the plastic moment is generallyequal to Z*Fy. This means that all of the material in the section is at yield. Theoretically, this is the maximum moment that can be transmitted to the connecting structural members. There can be more rotation, but no more moment. Plastic hinges can form from either static or dynamic loading. The significance for earthquake loading is that we can select where the plastic hinge will form by intentionally make certain members weaker. For example, one would want a plastic hinge to form, say, in a column rather than in the piles under the ground because the column would be easier to repair. Earthquakes can impose large displacements on structures. If you try to keep everything elastic, you get into an infinite loop because the forces just get higher. Plastic hinges act like fuses. By introducing them into a design, you limit the forces.