Dance with nothing on? That's swell! (7)
I believe the answer is:
balloon
'swell' is the definition.
(thesaurus)
'dance with nothing on?' is the wordplay.
'dance' becomes 'ball' (ball is a kind of dance).
'with nothing' becomes 'o' (I've seen this in other clues).
'ball'+'o'+'on'='BALLOON'
'that's' acts as a link.
(Other definitions for balloon that I've seen before include "Air-filled bag" , "Inflatable thin rubber ball" , "See 21" , "Inflatable rubber bag, could be filled with hot air" , "Inflate" .)