Basically, good dialogue stems from people NOT saying exactly what's on their minds. "On the nose" dialogue is where a character says exactly what's on his or her mind, with no subtlety, no nuance, no evasiveness, etc.
Sometimes people do this in real life, but it's not always a good thing in a movie, because it diffuses all the dramatic tension in the scene.
Dramatic tension in dialogue doesn't come from what characters say, it comes from what they don't say.
Example:
Regular: "Meatloaf again? That figures."
On the nose: "I feel so frustrated with you because nothing in our life ever changes and lately you've been ignoring me and I feel you don't love me anymore and I'm afraid you may be cheating on me and it really makes me feel empty inside and very self-conscious."
If you want an example of the worst, most on-the-nose dialogue (and, worst all-around writing) in television history, just watch any episode of "7th Heaven" on the WB.