In Act II, scene i, the audience knows that Romeo and Juliet have met at the Capulets' party where they have exchanged words and shared a "holy kiss." They've each discovered that the person they've fallen so quickly in love with is a member of the family their own family despises. Juliet says "my only love sprung from my only hate."
The audience has witnessed their rash and romantic actions. But in the beginning of this scene, Romeo's friend Mercutio and his cousin Benvolio (and some other men) are searching for Romeo and when they don't locate him, the assume he is with the girl he "loves," Rosaline. As far as they knew, Romeo was still in love with her. In fact it was only a few short hours ago that he was wallowing in his misery because he loved a woman so much who did not return the feelings.
Dramatic irony occurs when the audience (or reader) knows something that the characters do not. Think of a horror movie. The audience knows the killer is in the basement, but the character walks innocently into the trap in order to investigate some small noise. In this scene, the audience knows that Romeo and Juliet are in love but characters such as Mercutio believe that Romeo is still hung up on Rosaline.