Could you translate it as "Wat betekent dit woord"?
Yes, that's the most favourable way of saying it.
On my own, I would have gone with, "wat is de betekenis van DEZE woord?
Can anyone remind me which lesson addresses this dit/dat/deze distinction please?
"Deze" and "die" are interchangeable in Dutch and I do not really understand why "Wat is de betekenis van deze woord?" is considered incorrect.
"Deze" translates to "this". "Die" translates to "that"
I assume you meant Deze and Dit. And no, they're not interchangeable. Deze is used for De-words whereas Dit is used for Het-words.