Pick one up off the rail and the first thing you should notice is the weight and the drop, the way it hangs straight down from your hand without any clinging. A good tunic dress has a bit of body to it. Not stiff, but not so thin it clings to everything either. If it feels flimsy and see through under the shop lighting, it will be worse the second you're outside in daylight with the sun behind you, so hold it up and have a proper look.
Before you buy, check the side seams for actual slits or vents, because a tunic without any ease at the hip will crawl up when you sit down and stay there, and you'll spend the whole lunch tugging it. Check the neckline sits flat without gaping when you lean forward, since a lot of these are cut loose through the body but left a bit too open at the front, and that's fine standing still and less fine bending to pick something up off the floor. Check there's a bit of weight in the hem too, a proper finished edge rather than a rolled one, because that's what stops it blowing about and riding up on a breezy walk to the car. As for when it's wrong, a tunic dress is not the thing for anywhere you need to look pulled together in a structured way, an interview or a formal do, because the whole point of it is the slouch, and if you're after something with a waist and a line you'll be disappointed and probably tugging at it all day trying to make it into something it isn't. It's also not brilliant on days you're on your feet moving fast, carrying things, going up and down stairs a lot, because the loose fit that's so comfortable sitting at a desk starts to feel like you're wearing a sail once you're walking with any purpose.
On fit, go by the shoulder and bust rather than by how it looks on the hanger, because tunic dresses are deliberately generous everywhere else and sizing down usually just makes the proportions wrong without actually making it fitted. If you're short, watch the length, a lot of these are cut for someone five foot seven and on a five foot two frame they stop being a tunic and start being an actual dress, which changes what you can wear under it entirely. Leggings, straight jeans, even a slim trouser, that's the whole point of the shape, something underneath doing the work your legs would otherwise have to do alone. I wear mine with plain leggings and trainers for the school run and with the same leggings and boots for everything else, and it's the only dress I own that does both without me thinking about it.
Check the length against your own height before anything else, that's what decides whether it's a tunic or just a dress with an opinion.