Two lines of interpretation are possible here:
(i) [NF] If the headword is upper-case, i.e. a toponym in its own right, perhaps the 'Polei' is intrusive and the reference is to an actual place called Dion. (There was one in Pieria, Makedonia [Barrington Atlas map 50 grid B4], and one on the Athos peninsula [map 51 grid C4].) Alternatively, a mangled rendering of Poleatikon in the Bosphorus region.
(ii) [DW] Perhaps the lexicographer or his source has wrongly construed as a specific place-name what is nothing more than lower-case poleidion/polidion, the generic diminutive of polis; see e.g. Strabo 9.2.32, 10.1.5.