The story
From pee-pee (“colloquial, usually childish: urine”) + dance, because the movements ostensibly resemble dance moves.
Etymology from Wiktionary, CC BY-SA 4.0.
pee-pee dance
Today it means: Synonym of potty dance (“voluntary or involuntary movements resulting from attempting to avoid urination when one's bladder is full, typically by crossing one's legs, hopping, twitching, or holding one's crotch”). Full definition →