Dummy: stupid person, thing babies suck, or book with no content. Let's go for the last. This could be the Dummy's guide to Dummies.
A dummy is a plain-paper mock-up of a book that shows the size, paper quality, possibly the real cover, and other physical aspects. In novelty books, it shows paper-engineering features such as flaps, gatefolds and pop-ups. You'll see these dummies at book fairs. They are made by the publisher (or paper engineer) and you don't need to worry about them as a writer - unless you are also a paper engineer, of course.
Just to add to the confusion, if you write/illustrate picture books a dummy is something else. It is a mock-up of the finished book as you see it, with rough illustrations and text in place. It may be the right size, but it need not be. The point of the dummy is to show the editor the arrangement of pictures and text that you envisage. It's much easier to do with a dummy than by describing it. To make it, you make copies of your illustrations and print out the text (or scan in and add the text in Quark or whatever) and paste them onto pieces of paper. You can glue or stitch them into a book or leave them as loose pages as you wish. Loose pages are easier for the editor to photocopy for acquisitions meetings, but a bound dummy can give a better idea of what the book will be like. I'm not going to go into great detail about how to make a dummy as you can find out here and I want some breakfast now.