IANAn insurance agent, but a homeowner and former owner of a condo rental unit. The dwelling amount is how much it would cost to replace the actual structure (or your part of it). What you bought presumably included not only the actual unit itself but your share of the condo association’s common property – the open space, parking areas, pool or tennis courts, anything that’s owned and used in common by all the owners. You don’t need your insurance to cover that part, the homeowners’ association should have its own insurance that covers those things, and your monthly fee includes your share of that.
Your homeowners’ or condo association, or the insurance agent, should be able to give you guidance as to the amount in each category, and to advise you as to what kind of coverage you need.
Homeowner’s insurance generally also includes liability insurance to cover you in case someone is hurt on your property, or some action of yours within your unit causes damage to someone or something. There is usually a coverage for theft as well, so that if somebody breaks in and steals your t.v., for example.
These associations differ in what is considered common vs. individual property. In the unit we owned, anything inside the walls was considered ours, our responsibility and our potential liability. The outer walls themselves were community property. We had a fine mess when the upstairs neighbor had a leaking appliance that damaged their floors, the area between their floor and our ceiling, our ceiling, our walls and our floor. IIRC, we eventually got a settlement from them that they paid us for our costs and then invoked their own insurance to see if they could recoup anything. I have no idea if they did.
In the case of a free-standing house, the dwelling coverage is for the structure itself. The total property value is higher, since it also includes the land.
The cost of the insurance depends on many variables including, but not limited to, the type and age of the structure, and the location. It also covers contents – your furniture and valuables – just as your renter’s insurance used to do. Shop around.