This is a folksy expression meaning that whatever is being presented, an idea, a theory, a personality, a person, is not measuring up. A dog is supposed to hunt. A dog that doesn't hunt isn't much of a dog.
But all dogs aren't designed to hunt. Some dogs are designed to catch frisbies, sit in laps or purses keeping their owner's company, aiding the blind, etc. You get the idea. Not all dogs worth a sniff are hunters.
Do you have an idea of the way you SHOULD be? When you fall short of your ideal, do you beat yourself up? Do you spend your days bemoaning that what you actually do with your time is not the best and finest use of your time? Do you criticize yourself for not being the person you want to be?
You might want to ask yourself who you really are. Trying to be someone you're not is like asking a German Shepherd to spend the day in a handbag. Accepting yourself as you truly are will get you where you want to go much more quickly: to peace, joy, and happiness.
Try looking at what you consider to be your "bad" qualitiess in a different light. Perhaps what you consider "lazy" is really the wisdom to not start anything that you don't really want to do. Maybe your sadness is the flip side of the depth of your compassionate heart. Your crazy energy might be an expression of your amazing creativity trying to find an outlet.
Try to find yourself in your darkness and bring your personal taboos into the light. See yourself in a new way. When you try to make yourself something you're not, your doomed to frustration and self criticism.
Now that's a dog that won't hunt!