When you call someone, usually a female, a 'Dog' it means they're probably ugly or revolting in some way. If you call them a 'Dawg' it means that they're a friend or a 'homie' and are one of the pack. What if you're in the "ghetto" one day and use dawg while talking to someone, but say it without the proper pronouciation and say it more like dog. You could get shot for something like that, dog.
S'up dawg, check out that bitch-ass nigga.