What is the definition of power dissipation?

Power dissipation is the maximum power that the MOSFET can dissipate continuously under the specified thermal conditions. It is defined between channel (ch) - case (c) or ch - ambient air (a) when mounting an infinite heat sink.
When a heat sink is attached to a MOSFET, power dissipation is calculated from the sum of 1) channel-to-case thermal resistance (internal thermal resistance), 2) insulator thermal resistance, 3) contact thermal resistance, and 4) heat sink thermal resistance. For MOSFETs housed in a surface-mount package, power dissipation is specified in the case of mounting on a board. The board size is specified in individual technical data sheets.
The allowable power dissipation varies with the conditions under which the MOSFET is used (such as ambient temperature and heat dissipation conditions). In practice, power dissipation should be calculated from channel-to-ambient thermal resistance in the end-use application environment.

Thermal Design and Attachment of a Thermal Fin: Power MOSFET Application Notes (PDF:1,061KB)

Maximum Ratings: Power MOSFET Application Notes (PDF:1,075KB)