To allow donors the option to dedicate their donation in honor or in memory of someone, follow these steps:
Under the Your Donation Form section, click on Donation Designation/Reason:
Enable the option:
Select the options and features you wish to have.
Click Update, and you're done! Your donors are now able to dedicate their donation in honor or memory of someone.
For an example of an organization that enables this feature, take a look at The Halo Trust's donation page.