I believe dread loss, is how much your accumulated dread is being subtracted over time.
So if you killed 5 people for, made up numbers, 50 dread, then that dread is going to be slowly reduced because you are in jail. And the fact that you are in jail negates or brings down any previously accumulated fear of you people had from you killing those people.
Natural dread sounds like dread you accumulate gradually over time probably through traits or perk picks, it's also the same principle. If you are known as a cruel ruler overall, that doesn't matter if you are in prison.
The take away from this I think, is how compromised will a dread or semi-dread based ruler be if captured? Because if most of that person's vassal control relies on dread and that dread is now negated by being locked up, those vassals will not be afraid to rabble anymore.
And comparatively if a well liked ruler who doesn't rely on dread either in part or in full, but relies on opinions and good standing is locked up, conceivably a more benign ruler will have a much less fractured realm as a result of imprisonment.