Meaning: This sentence means that if a talented person is lazy, someone with less talent but who works hard can achieve more.
Choice of Words: Sweat means to produce drops of water on your skin because you are hot or working hard. Defeat means to win a fight or competition. Talent means a natural ability to do something well. Dream means to see things in your mind while you are asleep. When you put them together, "Sweat defeats talent when talent dreams" means that hard work and dedication can overcome natural talent if the talented person is not working hard.