Technically, it is the first person plural indicative of the verb "to dance" and would be translated "we dance" in English.
However, there is also language "convention" to consider as well as the context within which "bailamos" might be used.
Depending on the situation or context, for instance, "bailamos" can also be intepreted to mean " we will dance". "Manana, bailamos" is perfectly acceptable, just as "Tomorrow we dance" is in English, although the action is not happening right now but rather happening in the future.
It can also be interpreted to mean "let's dance", although "bailemos" rather than "bailamos" would be more gramatically correct as someone else above has already suggested. "Vamos a bailar" also means "let's dance", but you are not as likely to hear that as you are "bailamos."
Smile@me correctly points out that when articulated as a question - "bailamos?" - it is the same as the English "would you like to dance?", or "shall we dance?", or "you wanna dance?"
OK, I think we have sufficiently killed this question, don't you?
Retired Spanish and English teacher.