I have/had been a musician for more than 10 years and a dancer for almost one year. Although I really haven't gotten into discussing musicality and phrasing as it relates to dance with my instructor, I am taking an educated guess here and please, those of you who have been studying dance or have degrees in dance, correct me if I'm wrong.
In layman's term musicality (musical sensitivity) as it relates to dance is how you relate to and express yourself through the music. It's not enough to just feel the music. You need to show the audiences through movements (not moves or steps) and expression what you feel or how the music makes you feel.
The previous poster has touched on the what phrasing is, but I wanted to add that you should be careful not to have any fast rules about how many bars make up a phrase. A phrase is a sequence of bars and notes intended to have some sort of meaning. A lot of times composers will vary the length of each phrase to add variety to the music. For the dancer, the length of your sequences of moves should coincide with the length of each musical phrase and it ties into musicality.