The young Magpies restricted Sunderland's senior side to barely any clear-cut chances in the opening 45 minutes before suffering a killer blow after the break, conceding two early goals following an unfortunate own goal from Kelland Watts and a Charlie Wyke header.
Chris Maguire and Benjamin Kimpioka netted towards the latter stages of the cup clash, ending the under-21s' eye-catching run in the competition, which had seen them unbeaten before facing Jack Ross' side at the Stadium of Light.
But - despite the scoreline - Dawson was particularly impressed with the first-half display from United's second string, who managed to create chances of their own as they grew into the game after facing early pressure from an experienced League One side.
Dawson told nufc.co.uk: "First and foremost, I'm really proud of the group of players who have got the team this far in the competition and gaining a great opportunity to play in the game.
"We played really well in the first half and probably had the best chances in the game at that point. We could have been ahead at the break, but coming in at 0-0, we'd still have taken that.
"We had a chance to reassess and reinforce all the positive things that the team had done well but it was a shame to concede a scrappy own goal early on in the second half which got the crowd going. The second goal was avoidable too and it gave us a mountain to climb.
"I thought we played some good football at times, albeit a little bit too deep. When we did get the ball further up the pitch, we tended to cause Sunderland a few problems, getting into some good areas but without threatening the goal as much as we should have.
"It was disappointing in that point of view but we remained positive at half time, looking to play higher up the field to get in behind them, which we asked of them and which we'd practised but the goals just came at the wrong time and knocked the stuffing out of us."
Newcastle's second string played in front of over 16,000 supporters, a considerable increase on their usual attendances, with 2,780 away fans making the short trip to Wearside, and Dawson believes facing Football League clubs has been good for the players' development.
He added: "It will certainly be an experience that the lads can learn from. The fans were terrific, recognising the spells in which we managed to play and never stopped singing and the players really appreciated their great support.
"It's a different experience that adds value when there's something riding on the game. We found that the lads have thrived when we've been up against it, especially away from home, and that has brought out some of our best performances.
"In the meeting before the game, I used some words I'd written down to describe the group and how they've been so far this season. Those included confident, optimistic, resilient and enthusiastic and we definitely saw that for big spells in the game."
