2. Someone who is daggy, i.e. uncool. This can be meant insultingly or affectionately. (Much like that other well-known Australianism, "you old bastard".) On the face of it, it's an insult, but there are ways in which it is seen as admirable to be a dag – having one's own style, not caring for public opinion, being outrageous, being a source of friendly amusement, being original.
2. (a) Insulting: "I wouldn't go out with him, he's the biggest dag around."
(b) Affectionate: "She's such a dag, we always have heaps of fun."
3. Comedian John Clarke's character on New Zealand and later Australian radio, Fred Dagg, so named for obvious reasons.