With a growing emphasis on energy efficiency and system flexibility, a great effort has been made recently in developing distributed energy resources (DER), including distributed generators and energy storage systems. This paper first formulates an optimal DER coordination problem considering constraints at both system and device levels, including power balance constraint, generator output limits, and storage operational constraints such as energy and power capacity and charging/discharging efficiencies. An algorithm is then proposed to dynamically and automatically coordinate DERs in a distributed manner. With the proposed algorithm, the coordination agent at each DER only maintains a local incremental cost and updates it through information exchange with a few neighbors. Simulation results are used to illustrate and validate the proposed algorithm.