The young Magpies, who were unbeaten in four Division Two matches, fell behind to Harvey Knibbs' 16th-minute header before Lewis Brunt's finish on the stroke of half-time doubled the Villans' lead at Whitley Park.
There would be no repeat of a comeback victory for Newcastle following the first team's heroics against Everton at St. James' Park, as Villa substitute Kelsey Mooney slotted home in the final minutes after United piled forward in search of a goal.
The loss saw United drop into fifth place, the final play-off spot, and after conceding the opener - a free header from a corner - Dawson believed it was a bitter blow for his youthful side.
He told nufc.co.uk: "I thought we started brightly in the first 15 minutes and had a lot of control of the game. We were looking after the ball well and made things predictable for when our opponents had possession.
"However, the first goal knocked the stuffing out of us and I tried to stress that we cannot give people free headers from set plays. It gave Villa something to hang onto and our lads, because of the importance of the game, started to panic a bit and forget to do what they've done in training - doing the basics really well.
"The second goal came from some poor decisions and quality from us, coming right on half time which was poor. We had a plan B in mind to make some changes, which we did, and although we huffed and puffed in the second half, we did not really threaten their goal.
"We found ourselves chasing the game after going behind, having to open up and put extra bodies forward to try and get back into the game. Because of that, we paid the price at the other end by conceding in the last minute."
With only four league fixtures remaining for Newcastle's youngsters, Dawson knows his group must move on quickly from the loss ahead of their Premier League Cup last 16 clash at Reading on Friday afternoon.
Dawson added: "It is disappointing but we can't be too down about it - the same as when we've never been too high after positive results. We have another important game coming up on Friday, so we'll regroup and look ahead to that.
"As we've had some good results recently, the performances haven't been that good. We knew the time would come when we don't win a game and then you need that performance to remain confident, which we haven't had.
"We're looking into how we can instil confidence into the group again rather than looking at results. They have to start learning from those experiences to make sure those mistakes do not happen again."
