Dip circle also called dip needle is a compass pivoted to move about a horizontal axis in a vertical plane containing the magnetic field of the earth i.e. it shows the angle which the magnetic field makes with the vertical. At the magnetic poles such a needle will point straight down.
A compass needle would stay along the magnetic meridian of the place. In some places on the earth there are deposits of magnetic minerals which cause the compass needle to deviate from the magnetic meridian. Knowing the magnetic declination at a place allows us to correct the compass to determine the direction of true north.