Here's the passage in question:
Meanwhile the Jews in the region of Cyrene had put a certain Andreas at their head, and were destroying both the Romans and the Greeks. They would eat the flesh of their victims, make belts for themselves of their entrails, anoint themselves with their blood and wear their skins for clothing; many they sawed in two, from the head downwards; others they gave to wild beasts, and still others they forced to fight as gladiators. In all two hundred and twenty thousand persons perished. In Egypt, too, they perpetrated many similar outrages, and in Cyprus, under the leadership of a certain Artemion. There, also, two hundred and forty thousand perished, and for this reason no Jew may set foot on that island, but even if one of them is driven upon its shores by a storm he is put to death. Among others who subdued the Jews was Lusius, who was sent by Trajan.
After the fall of Jerusalem in 70, Jewish residents of the Roman Empire were forced to pay the temple tax they had previously paid to Jerusalem to the empire as a kind of indemnity for rebelling. The Flavian Dynasty also relied on its conquest of Judaea to bolster its legitimacy without the Julio-Claudian bona fides of previous emperors and so the regime generally denigrated Jews.
When the Flavian Dynasty fell, the Jews were finally given a ray of hope by Nerva, who cancelled the payments of the temple tax to the empire and seemed to be a break from the Flavians. When Trajan came to power, however, he reverted back to the old Flavian policy, in part because the Traianus family also first earned its military glory when Trajan’s father served as a lieutenant to the Flavians in Judaea.
Seeing their hopes of an end to oppression and possible rebuilding of the temple raised up only to be dashed sparked a second Jewish rebellion that was particularly bloody and led to widespread civilian massacres in places like Cyrene and Egypt, which had large Jewish populations and histories of ethnic conflict between Greeks and Jews, before the rebellion was eventually put down.
Source: Rome and Jerusalem - Martin Goodman
Dio was notorious for repeating rumors and generally for writing strongly from a Roman perspective without context. This is extremely understandable and common — in modern terms, consider the works of 19^th century American historians on Manifest Destiny and westward expansion when speculating on Native American motivations.
Trajan died before Dio was even born, and so most of Dio's sources would have been from Romans and Greeks who had written accounts at the time, which again, wouldn't have been disinterested. Consider how barbaric Josephus' Wars of the Jews appeared to be … and he was a Jew. One who later took Roman citizenship, true, he was still born and raised in Roman Palestine and even fought on behalf of the Jewish rebels before defecting to the Roman conquerors.
The war in which Josephus fought is the same one to which Dio refers, albeit in a different theatre of war, and one of Dio's sources (LXV). Josephus off-handedly mentions tortures by Jewish citizens on other Jewish citizens, for example.
Not that the Jews weren't motivated themselves. Josephus was a near-contemporary of Jesus, and if you know your Biblical scholarship, you know of the wild factionalism present in Judea at the time — Pharisees vs. Sadducees vs. Essenes vs. Zealots.
Radical Jews had murdered much of the Roman garrison, who had surrendered to the mob on the basis of safe conduct after they profaned the Temple in Jerusalem.
The Romans, in turn, indulged in pogroms against Jews, as far away as Egypt and Syria. Needless to say, they didn't bother checking their victims' affiliation with rebel causes.
Dio was a popular historian. It would be akin to reading Stephen Ambrose for disinterested tales of World War II or Jared Diamond for information on comparative history. The shocking bits, whether they're well-founded or not, are going to be way more interesting to his audience than disinterested analyses, and he was writing for that audience.
Bear in mind, the writings of Dio were immensely influential in our understanding of that era of history. We don't have many (if any — I don't know of any, anyway) Jewish sources on that rebellion right before the Diaspora. Their propaganda, unsurprisingly, would have been from the opposite point of view, talking about Roman atrocities of the period, but it didn't survive.
What is clear from both Josephus and Dio is that this was an extremely dirty war, fought using guerrilla tactics against targets of opportunity. Intimidating civilian populations into not offering support to the dominant group is absolutely a major tactic of outnumbered forces. A few barbaric incidents would be considered par for the course, and fighting entirely through terror tactics and raids is far from unheard of even now.
You might find Michael Eisman's "Josephus and Dio: Parallel Sources" helpful to understand my off-the-cuff analysis here.(https://www.jstor.org/stable/41530379)