Dignity, to me, is partly defined by an outward show of self-respect and partly defined by an inward ability to maintain poise and self-awareness. It is a quality that keeps a person clean, in a figurative sense - unsullied by the low things he or she may encounter; unmoved by the bad attitudes and bickering he or she may face.
Putting it as a visual metaphor, dignity is an upright posture not expecting a picture to be taken of it, but always ready if the flashbulbs start popping.
I think that you can interpret dignity in different ways, but I would define it as respect. When you act with dignity, you have self-respect. When you treat others with dignity, you are showing them respect. Dignity is one of the most important components of our humanity. When a person’s dignity is taken, that is the worst abuse of all.
To me, you have dignity when you conduct yourself in a mature way at all appropriate times. It consists of things like not allowing yourself to get carried away by your emotions at times when that is inappropriate (like, for example, yelling and screaming at other drivers when they do not drive the way you want them to).