Power System Stabilizer (PSS) enhances dynamic stability by damping the electro-mechanical oscillations in a pre-established range of frequencies through the excitation system of the generating units. This paper discusses the real-time tuning aspects of PSS for small signal stability and enhancement of the dynamic stability of the power generating stations. PSS tuning action provides positive damping by developing an electric torque component in phase with the generator speed. This study shows that fine-tuning of PSS compensates for the phase shift between the generator’s excitation unit input signal and the produced electric torque. The result validates PSS's remarkable effect on enhancing the transfer capability and dynamic stability of the power generating stations.