"I was dagging in my car when.."
A dag is technically the matted wool on a sheeps tail, but in typical useage throughout Australia, it refers to people who don't have a neat, tidy or cultured appearance. It can also refer to a person who tends to be quite informal.
It is not necessarily a derogatory term in modern useage.
2. An unfashionable person.
2b) term of endearment for a unfashionable person that tells corny joke.
Whether it is a term or an insult depends on the context.
"God you are so daggy." (insult)
must be said very casually; can be used to express sympathy, surprise, awe, and many others.
must drag out the "aaa"; not too long, but so it isn't too short; like a crowd at a magic show going "Oooo...Ahhh..."
(House across the street explodes)- "Dag."
"Grandpa just died? Dag."
Man 1: "I have to write a 1000 page paper on the life of Tony Danza."
Man 2: "Dag."