Go ahead and set up the subdomain here. If it doesn't immediately let you create dev.example.com, then trying to create just example.com, and then create the subdomain.
You'll then have to get the IP address of your server, so go to the panel here and click on Account Status. Do a host lookup of MACHINE.dreamhost.com based upon the webserver MACHINE name they tell you. Use that IP address to manually add the subdomain's A Record to the DNS at your other host.