Has there been any studies done on why dancing when you need to pee seems to allow you to hold it better than just staying still?
They did it on Mythbusters with inconclusive results about whether it helped or not.
I don’t think that’s true at all. I think some people mistakenly believe it’s true. Other than Mythbusters (who are anything but) it’s darn hard to find a cite.
I think its just a distraction.
I don’t know about dancing, but if I am driving, I seem to be able to hold on much longer than if I am a passenger.
It doesnt for two out of three, I think. It helps for a few people. iirc.
Can you please describe said “pee dance”? Is it like a jitterbug, break dance or perhaps more of a waltz?
Its entirely psychological. Similar to how you don’t need to pee until you are near your bathroom. Having said that I’m fairly certain that holding in your pee uses muscles that you can train. So i guess if you want to hold in your pee or stop mid stream you have something to practice now! 
Its more like I’m standing on a really hot floor barefoot, and I take small steps in place like I’m walking, and also I squeeze my legs together like I’m trying to crack a walnut
A correctly done pee dance incorporates many of the movements of a Zuni Rain Dance, only performed in reverse.
Also known as disco fox. 