When dogs circle before lying down, it is a normal behavior. It might look strange, particularly if you have never seen it before. Do not worry: this normal activity originates from the dog’s wild ancestry.
In the wild, animals create their bed or nest when they go to sleep for any length of time. Before the dog was domesticated, its wild ancestor had certain behaviors that have been carried down by the domestic dog, which lives in the house, as a practical or ritualistic behavior.
Depending on the climate or season, the wild dog has to makes its bed and it does so by walking down the grass for its bed. Tamping down the grass or snow serves to both flatten the surface for comfort and to create an insulating layer for warmth. Domesticated dogs will perform a circle on their bed for the same purpose.
An example of a dog carrying out a ritual behavior from its wild ancestor is the action of circling before lying down even though there is nothing to flatten. There is no apparent reason for the behavior; the healthy dog just does it. Not all dogs circle before lying down.
When a pregnant dog is ready to deliver, she will create perform nesting behaviors that are related to the circling around before lying down. The pregnant dog will fluff up, scratch at and smooth out the area in which she will deliver her puppies. A bitch, that is ready to deliver, may also try to gather pieces of clothing or cloth for the creation of a soft bed.
When you see your dog circles before it lays down, you are watching a remnant of wild dog behavior in your dog. Instead of flattening the grass or making a spot in the snow, your modern dog will adjust its bedding or just circle in a ritualistic movement.