Maledetto translates to "cursed" or "damned". It's a strong, evocative adjective that adds significant emotional weight to the lyrics.
In the song, Toto Cutugno uses it to describe a "maledetto sogno" (cursed dream) that threatens to separate him from his beloved. This word immediately conveys a sense of foreboding and intense feeling, making it memorable and impactful.
Cutugno builds this one entirely out of "what if." He opens with "Se quel sogno maledetto mi svegliasse senza te" ("If that cursed dream woke me up without you") — so the whole song is him staying inside the nightmare on purpose, testing how much it would hurt if it were true. A friend tells him she's playing games with him, and he decides "Io non ci crederei" ("I wouldn't believe it"), he'd rather burn his own dreams than believe it.
Then he flips it: what if he woke up and she really was gone, with another man holding her the way he never quite managed to? His answer isn't jealousy, it's pride: "Allora dico di no, e con la forza che ho, io non ti cercherei" (Then I say no, and with what strength I have left, I wouldn't come looking for you). He'd rather get sick and die quietly than let her see it cost him anything — "Forse mi ammalerò, ci morirò e non lo saprai mai" (Maybe I'll fall ill, I'll die from it, and you'll never know). By the bridge the mask slips: "Che l'amore grande, immenso tu me l'hai buttato via" (That you threw away a love that huge), and admitting there's a man who loves her now, "e io da quasi alla follia" (and it's driving me almost mad). It's a very Sanremo way to write heartbreak — all that composure is the performance, and the song lets you hear it crack.