The direct molecular simulation (DMS) approach is used to predict the internal energy relaxation and dissociation dynamics of high-temperature nitrogen. An ab initio potential energy surface (PES) is used to calculate the dynamics of two interacting nitrogen molecules by providing forces between the four atoms. In the near-equilibrium limit, it is shown that DMS reproduces the results obtained from well-established quasiclassical trajectory (QCT) analysis, verifying the validity of the approach. DMS is used to predict the vibrational relaxation time constant for N2-N2 collisions and its temperature dependence, which are in close agreement with existing experiments and theory. Using both QCT and DMS with the same PES, we find that dissociation significantly depletes the upper vibrational energy levels. As a result, across a wide temperature range, the dissociation rate is found to be approximately 4-5 times lower compared to the rates computed using QCT with Boltzmann energy distributions. DMS calculations predict a quasi-steady-state distribution of rotational and vibrational energies in which the rate of depletion of high-energy states due to dissociation is balanced by their rate of repopulation due to collisional processes. The DMS approach simulates the evolution of internal energy distributions and their coupling to dissociation without the need to precompute rates or cross sections for all possible energy transitions. These benchmark results could be used to develop new computational fluid dynamics models for high-enthalpy flow applications.