Since the mid-20th century, reservoir construction has increased rapidly, and the number of mega-reservoirs has risen. Consequently, the impact of earthquakes on the safety of reservoir dams has attracted growing attention. This study employed the Particle Flow Code (PFC) to conduct a dynamic damage and failure analysis of the Koyna concrete gravity dam under strong seismic loading and to investigate the influence of seismic waves and inertial effects on the dam’s failure characteristics. A damage accumulation and failure index based on PFC, accounting for damage paths and the number of cracks, was proposed. When the dam was subjected to horizontal seismic waves lasting 0.82 s and vertical seismic waves lasting 0.018 s, cracks penetrated the dam. Horizontal and vertical seismic waves caused failure resulting from horizontal and vertical displacement differences, respectively. The horizontal displacement difference exhibited two peaks. The dam was more sensitive to horizontal seismic waves. The greater the inertial force, the faster the rate of damage accumulation and failure, and the greater the number of damage cracks. The inertial force of vertical seismic waves negligibly influenced the damage accumulation rate, crack initiation time, and failure mode.