Explaining to a Yank that calling someone a shitty piece of wool, stuck to a sheep's arse is a compliment takes some convincing

What word are you referring to here? I don't know of any American slang that means a shitty piece of wool stuck to a sheep's ass, *dingleberry" is the closest we got and that's not species-specific. The only thing I can think of that dag means/has meant in America is a minced oath, for either God or damn ("dagnabbit", "dag yo"). Add an O on the end and you get a largely archaic racial slur for Italian people or a highly-localized regional sandwich. Didn't know about the sandwich until I was driving through NE Minneapolis and saw a bar sign advertising "Dagos & Liquor" and briefly had to clutch my pearls until a local explained.