What does dead as a door nail mean?
Is it used in set phrases, or is it normally used in any context?
Dead as a doornail is one of the many idiomatic similes used for emphasis (to intensify the adjective). Thus, it simply means dead, very dead, quite dead, certainly dead, etc. It can be used figuratively or literally in any context.
Another simile that comes to mind is poor as a church mouse, which simply means dirt poor, very poor, flat broke, etc.
I'm sure Cambridge and Longman still publish compendiums of English similes, proverbs and idioms. They're fun to peruse.
From the New Oxford American Dictionary:
Note that it is “doornail” with no space.
It would not be right to discuss this idiom without reference to this quote from the opening of Dickens's A Christmas Carol:
protected by RegDwigнt♦ Dec 30 '11 at 17:31
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