The phrase “two dollar word”* or “ten dollar word” (or “four dollar word” or “four bits word,” depending on where you’re from and how old you are) can have a couple of different connotations depending on how it’s used. The most common use is to mock the person who just spoke and imply that they are being pretentious, condescending, snooty, or just plain prissy:
A: That seems awfully high.
B: That’s the price. Y’all c’n try the next county over if’n ya like.
A: I suppose I must acquiesce with your demands.
B: That’s one o’ them two dollar words.
With this simple phrase, character B has acknowledged and mocked A’s use of a fancy word (as well as the overall attitude). Since a large group of people likely to use two-dollar words are unlikely to know the phrase, it also becomes an inside joke (or dramatic irony) where the condescending character who often assumes he’s talking over the others’ heads may not even know he’s being made fun of (the tables are turned!).
Another underlying connotation is that the person saying the phrase can’t afford words as fancy as the other person is using, so it can be used as a commentary on a class divide or difference in education between people of contrasting economic classes (no $2 words intended).
My favorite use of the phrase is a less serious situation when it’s used as a joke. Basically, the person says it to imply that he or she is less educated than is actually true – often with a Southern or Appalachian accent since the phrase is more associated with those areas.
And, of course, since it’s associated with those areas, having a character use it is instant characterization. Not bad for two bucks!
*The hyphen probably should be used but often isn’t.