Typically, a dialog is dismissed when its job is finished and it is being removed from the screen. A dialog is canceled when the user wants to escape the dialog and presses the Back button.
For example, you have a standard Yes/No dialog on the screen. If the user clicks No, then the dialog is dismissed and the value for No is returned to the caller. If instead of choosing Yes or No, the user clicks Back to escape the dialog rather than make a choice then the dialog is canceled and no value is returned to the caller.