Dally was from the Old French dalier, which is obsolete in French. It pretty well kept its meaning in English up to the 15th century, when the idea of sport, play and wanton flirting came in, and became the usual meaning which persists today.
The meaning in the sense of to chat, linger, tarry is obsolete, as pointed out in a previous post.
It may persist in local dialect as in the poetic example given by McGrath.


Dilly-dally means to vacillate or to act with indecision, and became popular as a term in the 18th century. Applying one of IanC's dating methods, I presume McGrath's poem is no older than 18th c.