We present the final results of the CP-PACS calculation of the light hadron spectrum and quark masses with two flavors of dynamical quarks. Simulations are made with a renormalization-group improved gauge action and a mean-field improved clover quark action for sea quark masses corresponding to $m_{rm PS}/m_{rm V} approx 0.8$--0.6 and the lattice spacing $a=0.22$--0.11 fm. For the meson spectrum in the continuum limit a clearly improved agreement with experiment is observed compared to the quenched case, demonstrating the importance of sea quark effects. For light quark masses we obtain $m_{ud}^{bar{MS}}(2GeV)=3.44^{+0.14}_{-0.22}$ MeV and $m_s^{bar{MS}}(2GeV)=88^{+4}_{-6}$ MeV ($K$-input) and $m_s^{bar{MS}}(2GeV)=90^{+5}_{-11}$ MeV ($phi$-input), which are reduced by about 25% compared to the values in quenched QCD.