This whole Dictionary lookup never worked on my Mac. Until recently when I found out that it only works when you have Dictionary.app in the Applications folder and not when you have put in in a sub-folder. I don't want all my Apps in one folder but have them categorized in a few categories, like "Internet", "Text", "Sound", "Graphics", etc.
But I made an alias of Dictionary.app in the Application folder, made it invisible to remove clutter, and now it works.

I have all my applications, also the Apple ones, in subfolders which gives more and more problems with Software Updates. It used to be that Software Update just put new versions of applications in the Applications folder, which I them had to move to the appropiate folder and overwriting the older version, but now it often just doesn't update applications anymore if they are not in the Application Folder. Software Update just ignores them like they are not installed. So it probably just looks for the whole hardcoded pathname instead for the Application itself. Not good, IMHO, I should be able to decide where I put my applications. If I want to backup regularly i might put them in my Documents folder.

Also: You can set the Dictionary to open a panel or the complete app in Dictionary > Preferences. If you set it to open the panel, when you activate the Dictionary panel and keep it open--by not clicking outside of it--the panel will follow the mouse defining each word the cursor moves over. Also also: You can change the keyboard command for "Look up in Dictionary" in System Preferences > Keyboard & Mouse > Keyboard Shortcuts. I changed mine to a one-fingered F7, for example.

I agree Chris. One keystroke and you have your definition. Then you can go back to what you were doing without having to quit an application, etc.