I would have thought of dynamic programming when asked if I could solve it more efficiently, but I've somehow just not had much occasion to use dynamic programming, so would have had to admit it would take an evening of reviewing my algorithms books to actually solve it that way.

However, I would have been able to come up with an alternative O(n^2) solution, involving building a directed graph with vertices representing each position in the string and the end of the string, with edges connecting two vertices if there is a dictionary word starting at the position corresponding to one vertex and ending just before the position corresponding to the second vertex. This can be done in O(n^2), and then you can find the shortest path from the vertex for 0 to the end vertex on this graph in O(n^2) (e.g., by Dijkstra's algorithm), and that gives you an exact covering of the string using the minimal number of dictionary words.