There's a whole thread on that here: http://www.thewitcher.com/forum/index.php?topic=10603.0Basically, you try to kill his followers, not him. Once you've killed a certain number of them, he drops dead.
I used igni and group. I knew I would not hurt dagon, but the incineration and group damage killed them off.what was wierd is that dagon did very little damage to me. I used a rubedo swallow and my health was always at about 90%