I'm not a Nikon expert, but I am familiar with in-camera HDR modes on both my DSLR and my P&S camera. This is the same as on your camera - if you engage HDR mode, the camera will take two photos - one exposed for highlights and one for shadows - then merge the two into a single HDR photo. How well Nikon cameras can merge the two files I do not know - you may need to put the camera on a tripod or hold tremendously steady between the two frames...some cameras can do automatic alignment of the two frames allowing for a little bit of movement, others don't align and require the camera to be still.
When using a 2-frame HDR mode like this, you should expose your shot on the highlights, as that is the first frame...the second frame is usually for shadows so if you expose too much for shadows in the first shot, the second shot might end up badly overexposed, and the HDR results won't look as good.