Associated means you are in the picture, looking through your own eyes — experiencing the memory or imagination from a first-person perspective, with all the feelings fully present.
Dissociated means you can see yourself in the picture — you are observing the experience from a third-person perspective, as if watching yourself on a screen.
The distinction is important in NLP because the level of emotional intensity is significantly different between the two positions. An associated state carries the full emotional weight of the experience. A dissociated state allows you to observe the experience with more detachment and objectivity.
Many NLP techniques deliberately move a person between associated and dissociated positions to either amplify or reduce the emotional impact of a memory or imagined event.
See also: What is an example of a One Time Learning? | What is NLP?