What do these lyrics refer to?

Exactly! This is why it's such a funny moment. As Roger, Mark and Collins used to live with Benny, they knew Alison had a dog named Evita. Thus, when Benny says his dog was killed, they make the connection to Angel telling them she killed an akita. This is also touched on in Happy New Year B when Angel talks about how she went through hell when her cat took a fall and Benny asks how she knew his dog fell, and after Angels funeral when Collins says, "It's only fair to tell you you just paid for the funeral of the person who killed your dog." and Benny responds with, "I know, I always hated that dog." Hope this helps :)