I have tried googling and there I cannot seem to find a definition. Just an anecdote here and there that incorporates the phrase. I've also tried an idiom dictionary but it doesn't come up. Is this an idiom in the English language? If it is an actual idiom what does it mean?
It's likely derived from the idiom 'face/confront your demons': http://www.usingenglish.com/reference/idioms/face+your+demons.html
"If you face your demons, you confront your fears or something that you have been trying hard to avoid."
Here are some various instances of the phrase in books which show its relation to confronting fear or inner turmoil.
"Dance with your demons all you want. In fact, in the pages that follow, you will be asked to know them intimately. They will be some of your most valuable teachers, but with every passing waltz, with every old, familiar rhythm, you will begin to know their trickery; learn the dance; and take the lead."
"I accept that those experiences created a shadow self within you and kinbaku allows you to dance with your demons instead of being destroyed by them."
"I know he will stand atop the highest mountain and dance with your demons until they no longer trouble you. I know he will calm the raging storm that has been bothering you for years. "
"You dance with your demons till you get strength, Lord, to beat 'em"
"She'd cried all night, but that had been months ago. Now she was learning to dance with her demons."
"The roar echoed through time, but haunted as he was, Jason had long learned to dance with his demons. He held his silence even when the quiet grew jagged with the sharp bite of Mahiya's fear, even when his every instinct snarled at him to destroy the thing that made her afraid."
"I would rather face a dark unknown than let it possess me. I have danced with the demons inside of my head; now I must lie down to rest."
However if we remove the possessive pronoun from the phrase so that it becomes dance with demons, the meaning changes entirely and becomes equivalent to dance with the devil phrase. Instead of meaning to overcome your fears and temptations to sin, it becomes the opposite: to succumb to your temptations.
"In so doing, we snare our souls and dance with demons. Is it the glory of the Lord to remain silent when we have steadfastly rejected his instruction. "
"Witches administer the kiss of shame to the Devil (the goat), while others dance with demons around the mountain. "
"The smile on his face dissolved into a murderous frown. 'If you want to dance with demons Roel be my guest,' Julian yelled walking away from me."
"He danced with demons. Can he pay the price?"
"We danced with Don Juan and his demons while their eyes cast out baleful beamins. Because he was a cool cat and knew it was our hour, we tasted of the Dark Power."
"We danced with demons in the shadowy glee and spent time behind bars in the city pens."
"Like his father before him, Banotaj was a man who danced with demons. Demons live to thwart the god. That is their purpose, they sometimes succeed. The god has its vengeance, Banotaj is dead."
"Having danced with demons, he'd whiffed their unpleasant odor and was glad to simply be an observer."
"Perhaps I have performed the foul Black Mass, chanting my prayers to the antichrist? Have I danced with demons? Mated with them also?"
"...who wanders here and there like a madman, dancing with demons in solitary places where corpses are burnt; who adorns himself with garlands made of snakes and heads of dead men, and rubbing ashes on his body goes about begging with a skull in his hand."
"How do you Judaizers have the boldness, after dancing with demons, to come back to the assembly of the apostles?"
In my humble experience, wrestling your demons refers to trying to overcome your troubles and vices, but dancing with your demons refers to entertaining them, even indulging them.
In Batman (1989), the Joker, played by Jack Nicholson, asked:
"Have you ever danced with the devil in the pale moonlight?
If your answer is yes, then you were dancing with your demons. The usual connotation is one of extreme immoral prejudice within one's self, i.e., "To dance with the devil in the pale moonlight" is a dual idiomatic phrase meaning to be sensationalized by one's own immoral or risky ambitions and/or one's evil tendencies.