1. "El perro murió" is the standard, but sounds a bit bookish and cold.
"El perro se murió" turns the verb into a reflexive verb by using "se", and thus sounds more natural. Literally, it would be translated as "he died himself", because "se" has the same value as "himself". "me", "te" and "se" and "nos" are used to transform verbs into reflexive ones, and literally mean "myself", "yourself", "himself/herself/themselves" and "ourselves".
In Spanish, it's very common to turn a verb into a reflexive verb when there's no direct object. For example, in English, you say "I sit", in Spanish we say "(Yo) me siento". More examples:
"(Yo) me voy" (I go)
"(Yo) me quedo" (I stay)
"El perro se me murió", as Javier pointed out, adds the "me" to add the meaning that he didn't just "die himself", he "died (himself) on me". You might have heard "Don't die on me!" in American movies. In Spanish, it would be almost literally translated, "No te me mueras", just adding the reflexive "te".