A dungeon in vanilla minecraft is a naturally generated rectangular underground room made of cobblestone walls, and containing a monster spawner and up to two chests. Dungeons are sought after by many players, as they can contain rare items such as saddles, contain mossy cobblestone in the floor which cannot be found anywhere else, and the spawner can be used to farm experience or the monsters' drops.
Dungeons are sometimes found connected to large caverns, and are identifiable by looking for cobblestone that you did not place, as dungeons are the only way cobblestone can be generated aside from flowing lava and water meeting. Once you've entered a dungeon, the spawner can be disabled by placing a torch on each side of it, allowing you to loot the chest/s and the mossy cobblestone safely. You'll need to take the torches off if you plan to farm anything from the spawner though.
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You can't make it, you have to find it in dungeon chests.
As of Beta 1.4, cocoa beans couldn't be found ingame. You can only find them inside dungeon chests. You can read more about dungeon chests on Minecraft Wiki (the link is under "Sources and related links" below this answer).
You can't craft saddles. They can only be found randomly in dungeon chests, luckily being one of the most common items found generated in a dungeon chest.
They randomly generate throughout the world, to find one just keep digging underground.
Some great minecraft seeds are: 404 Glacier BRAINS! lol 101101010 Notch Diamonds enter seed here !!!!! seed p.s. Brains! has a triple dungeon in it good luck finding it!