While rummaging for information on the magnetic dip of a compass, I found this site and thought it best to give it it's own mention. It's nicely put together, and has a good go at not only explaining magnetic dip, but magnetism in general.
"Robert Norman was a compass maker in London. In those days, this is how you made a compass. You produced a flat steel needle, then found the place in the middle where it balanced, and made an indentation, so that the needle could be placed on top of a pivot at that point. Then you rubbed the steel needle against a lodestone to magnetize it. But a strange thing was noted: when the needle was placed again on its pivot, it no longer balanced. The north-pointing end seemed heavier, and the compass builder had to snip off a bit from that end, to balance it again.
One day Robert Norman spoiled a needle by snipping off too much, and decided to investigate. He balanced a needle on a horizontal axis lined up in the east west direction, and after balancing it carefully, magnetized it. The needle could still point north-south, but now it also had the freedom to point at any angle to the horizontal. Suspended that way, it did not stay horizontal, but tilted its northward-seeking end at a steep angle downwards. This showed that the magnetic force pulling it northward was not horizontal, but slanted downward, into the solid Earth."