"Dungeons towns are built by Warlock and Overlord hero types to act as bases from which to wage campaigns of conquest for wealth and power. Similarly minded creatures are attracted as allies. Other Dungeon creatures are in thrall to their masters. Dungeon armies are possessed of a variety of long range attacks, have effective damage dealing troops, and have the ability to greatly disrupt the strategies of their enemies." RoE manual
Unless specified by the mapmaker, towns will generate with a random name. Dungeon towns will use one of these following names:
Blindroot
Castigare
Chillwater
Coldshadow
Darkburrow
Darkhold
Deepshadow
Dragonnade
Evernight
Lost Hold
Malev
Scar
Shade
Shadowden
Sorrow Crown
Veks
If there are more Dungeon towns on the map than possible names, they will use names taken from other towns.
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Some may find the information in this section subjective or irrelevant.
Upgrade the level 2 creature dwelling as soon as possible: Harpy Hags have a huge speed increase (6->9) and gain no retaliation.
Upgrading Medusas to Medusa Queens is more crucial than Beholders to Evil Eyes, because a Medusa Queen has eight instead of four shots, while a Beholder already has twelve. Getting an Ammo Cart (from Inferno's, Stronghold's or Tower's Blacksmith, or at a War Machine Factory), will help a lot, since Medusa Queen's eight shoots are still not sufficient for a fierce battle.
Bless your Harpies/Harpy Hags (Dungeon has a 19% chance to get Bless). Harpies/Harpy Hags have damage range 1–4. Instead of on average 2.5, with basic (advanced) Water Magic they will consistently do 4 (5) damage, a 60% (100%) increase. Similarly, Curse the enemy's Harpies/Harpy Hags (Slow would also be useful since Harpy Hags have a decent speed).
Haste your Minotaurs/Minotaur Kings. They are brutes which do a lot of damage and you want them to strike at the enemy as soon as possible. In addition a hasted Minotaur King can reach nearly any point of the battlefield given no obstacles.
Beware of Red and Black Dragons' breath attack which can damage your own troops. If you have both Black Dragons and Titans in the army, due to reciprocal hate Black Dragons will do 150% damage on their own Titans having attacked them by mistake.
Having only Black Dragons in your army, you may rush through the map with Dragogeddon manoeuvre. Red Dragons cannot be used for Dragogeddon as they are susceptible to 4-5 level spells.
Dungeon is expensive to build, has good magical capabilities (e.g. Mana Vortex and level 5 Mage Guild) and powerful troops like black dragons, which are among the strongest creatures in Erathia.
If there is a high level creature dwelling which can be conquered early, it may be beneficial to wait flagging other creature dwellings. This allows to recruit the high level creatures every week from both the Portal of Summoning and the dwelling itself. The Portal of Summoning selects its units every week randomly from all creature dwellings you have flagged. For example, if there are Red Dragons and Troglodytes available on the adventure map, it is beneficial to not flag the Troglodyte dwellings to recruit more Dragons.
Playing against Tower which has Titans who hate Black Dragons, try to use the following tactics so as to avoid Black Dragons' losses (see Cons). If Titans are behind someone else, attack that unit with Black Dragons, and breath attack will do 150% damage against Titans due to Black Dragons' hate against them. It works even if Black Dragons targeted another stack, and Titans won't retaliate.
The weekly income with Capitol and the Resource Silo is enough to recruit all the units without any external mines.
On a map with two layers, Dungeon will get a huge advantage as any battle in the underground will be fought on subterranean terrain, thus Dungeon units will get speed bonus.
Dungeon is the only evil town where Bless is not banned.
Dungeon doesn't suffer too much from being slowed down, as only basic Troglodytes have speed 4 (while Rampart, Tower, and Stronghold have some prominent units with speed 3-4).
Cons:
Dungeon is quite expensive to build it up.
Manticores are one of the weakest level 6 units, have low HP, and even when upgraded to Scorpicores they are significantly weaker than Naga Queens or Dread Knights. Scorpicores are also quite too expensive for their strength, costing more than War Unicorns.
Black Dragons are immune to any benevolent spells, including Resurrection.
Moreover, Black Dragons are slower than upgraded 7th level units of Castle, Rampart, Inferno, and Conflux. They are immune to Haste and Prayer, which allows Necropolis and Fortress to overtake Dungeon by top speed as well. Finally, their dwelling is very expensive.
Basic Pillar of Eyes which is level 3 creature dwelling requires each type of resource, and is necessary to build all higher level creature dwellings. It makes Dungeon possibly the worst town for playing on Impossible level.
Though Dungeon has many strong protagonists, it has many issues with heroes as well. Many heroes (Darkstorn, Deemer, Geon, Jaegar, Lorelei) have secondary skills which aren't that useful, and there is no one who specializes in Medusas, who are the only 4th level units without a specialist. Besides that, overlords cannot learn Water Magic, therefore being unable to cast Bless on the entire army, while many Dungeon units have significant damage range (especially Harpies and Minotaurs).
If the map has only one layer, Dungeon will get a disadvantage since subterranean terrain is used rarely without underground layer, and in most cases any other faction will get a speed bonus unlike Dungeon.
Beware Titans who hate Black Dragons. Titans and Black Dragons have similar stats, possibly sharing 2nd-3rd place in the whole game after Archangels, but Titans have an opportunity to shoot Black Dragons to death, and if Black Dragons force them to melee (which is possible as Black Dragons are faster), Titans will still do 150% damage by retaliation. Impossibility of Black Dragons' resurrection makes it a big problem.
Prayer is banned, while this spell may help Red Dragons (but not Black) a lot since they're immune to Bless, Bloodlust, and Haste. (Rampart's Green Dragons are susceptible to Prayer as well, and in Rampart this spell is available.)
Castle
Rampart
Tower
Inferno
Necropolis
Dungeon
Stronghold
Fortress
Conflux 
Cove 
Factory 
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, 4 
Troglodyte
Infernal Troglodyte
Harpy
Harpy Hag
Beholder
Evil Eye
Medusa
Medusa Queen
Minotaur
Minotaur King
Manticore
Scorpicore
Red Dragon
Black Dragon
Necromancy and 
Water Magic are not available for overlords.
Resistance and 
Interference