Dramatic Irony is when the audience know something that the characters don’t. The characters must also act to make them look like they don’t know the fact. 


Eg. When Orsino says that Cesario is so beautiful that he almost doesn’t look like a man (Shakespeare’s Twelfth Night)


Eg. When somebody says that they are having such a great day and everything is fine when there is a huge alien invasion that is going to happen in a few scenes that he hasn’t been told about.


As you can see in the two examples above the characters do not know a key fact to the storyline.