As a rule of thumb, aim to remove as little material from the segments as possible.
If the dynamo works there's not much wrong and maybe just a polish with a nylon pan scourer or even fine sandpaper is all it needs. Contact cleaner or turps/WD can be used as a lubricant and wash off. Avoid steel wool, as fragments will conduct, emery paper is also considered a no-no.
Deeper damage requires a skim on the lathe, take very fine cuts with a sharp tool, and only remove material until the surface just cleans up.
Finally the gaps between the segments must be cleared out or cut back as necessary, a cut down hacksaw blade was the old way, these days a craft knife can do the business.
With an unknown armature a first electrical test saves a lot of wasted effort...there should be continuity between adjacent segments, continuity between directly opposite segments and no connection between any segment and the centre shaft. Look for consistent resistance values in each of the two tests. Plenty on YouTube about testing brush type armatures.
Swarfy.
Additional. Trev's right... See next post.