If you want to say this as a question is: sabes bailar?

I would say "Tú realmente sabes bailar" (you really know how to dance - to emphasize that this is not a question, but a recognition of the person's skill in dancing) o "tú bailas muy bien" (you dance very well) Anyway, drop the "a".

But you have to add "usted" if you were asking that question to someone older.

Si. Yeah, that's correct. It does mean Do you know how to dance. ^^