"La dolce vita" is Italian for "the sweet life." It refers to an indulgent lifestyle.
The song is mostly dialogue between the characters Aeron and Gorham, who set out on a journey across the sea. The song was part of a larger concept Gabriel was developing based on a character called Mozo, which he thought might become a stage production. Mozo gets more of a showcase in "On The Air
," a track from Gabriel's next album.
These kind of songs with narrative that string together are typical of what Gabriel did with Genesis.