Just how and why Dionysus is associated with dolphins is unclear. The dolphin is more commonly associated with Aphrodite or, as the Romans called her, Venus. A good example is the Augustus of Prima Porta, where Cupid (Eros) depicted on the back of a dolphin is a reference to the first Roman emperor’s divine ancestor.
Did Arion ever exist? Herodotus reports the story as it was told among both the Corinthians and the Lesbians, so they probably took it as real. The fact that Herodotus emphasizes that it’s a story that he was told suggests that he perhaps doubted its veracity, but he records it anyway. Barring any further corroborating evidence, that’s often the best a reporter can do.
But whether or not Arion was a real person is besides the point. Herodotus regales us with tales not just to amuse, but usually also to teach us something. In this story, the moral is perhaps that one should face death with dignity, trust in the gods, and that the truth will come out eventually.