Why would my small ovarian dermoid cyst (1.6 cm) be causing me pain? Ultrasound showed no torsion and only trace fluid in pouch of douglas.

Inflammation... A dermoid can form any kind of tissue in the body: teeth, hair, skin, thyroid tissue, etc. It can be painful because it is stretching the ovarian capsule or because it is causing inflammation in the ovary or other surrounding tissue. Best wishes!