If you do not use frontend_model your html for two fields will look like this

<tr id="row_you_dependency_field_id">
    <td class="label"><label for="you_dependency_field_id">Dependency Field</label></td>
    <td class="value">
        <select id="you_dependency_field_id" name="groups[general][fields][you_dependency_field_id][value]" class=" select">
            <option value="1">Yes</option>
            <option value="0" selected="selected">No</option>
        </select>
    </td>
</tr>
<tr id="row_your_dependent_field_id">
    <td class="label">
        <label for="your_dependent_field_id">Dependent Field</label>
    </td>
    <td class="value">
         <select id="your_dependent_field_id" name="groups[general][fields][your_dependent_field_id][value]" class=" select">
             <option value="1">Yes</option>
             <option value="0" selected="selected">No</option>
         </select>
    </td>
</tr>

And the javascript to show hide dependent field will look like this

new FormElementDependenceController({"your_dependent_field_id":{"you_dependency_field id":"1"}});

But if you use frontend_model the value for the second field is rendered by your custom block and does not contain id of the dependent field and javascript just does not know what to hide.

<tr id="row_you_dependency_field_id">
    <td class="label"><label for="you_dependency_field_id">Dependency Field</label></td>
    <td class="value">
        <select id="you_dependency_field_id" name="groups[general][fields][you_dependency_field_id][value]" class=" select">
            <option value="1">Yes</option>
            <option value="0" selected="selected">No</option>
        </select>
    </td>
</tr>
<tr id="row_your_dependent_field_id">
    <td class="label">
        <label for="your_dependent_field_id">Dependent Field</label>
    </td>
    <td class="value">
         ...
         //The output of your frontend_model
         ...
    </td>
</tr>

When you generate html in your frontend_model just wrap your output into div and specify id

$fieldId = $this->getElement()->getId();

//your html 
<div id="field id here">
    //your frontend_model html
</div>

If you do not use frontend_model your html for two fields will look like this

<tr id="row_you_dependency_field_id">
    <td class="label"><label for="you_dependency_field_id">Dependency Field</label></td>
    <td class="value">
        <select id="you_dependency_field_id" name="groups[general][fields][you_dependency_field_id][value]" class=" select">
            <option value="1">Yes</option>
            <option value="0" selected="selected">No</option>
        </select>
    </td>
</tr>
<tr id="row_your_dependent_field_id">
    <td class="label">
        <label for="your_dependent_field_id">Dependent Field</label>
    </td>
    <td class="value">
         <select id="your_dependent_field_id" name="groups[general][fields][your_dependent_field_id][value]" class=" select">
             <option value="1">Yes</option>
             <option value="0" selected="selected">No</option>
         </select>
    </td>
</tr>

The javascript to show/hide dependent field will look like this

new FormElementDependenceController({"your_dependent_field_id":{"you_dependency_field id":"1"}});

And show/hide will work fine because both ids are present in html.

But if you use frontend_model the value for the second field is rendered by your custom block module/adminhtml_form_field_test and does not contain id of the dependent field and javascript just does not know what to hide.

<tr id="row_you_dependency_field_id">
    <td class="label"><label for="you_dependency_field_id">Dependency Field</label></td>
    <td class="value">
        <select id="you_dependency_field_id" name="groups[general][fields][you_dependency_field_id][value]" class=" select">
            <option value="1">Yes</option>
            <option value="0" selected="selected">No</option>
        </select>
    </td>
</tr>
<tr id="row_your_dependent_field_id">
    <td class="label">
        <label for="your_dependent_field_id">Dependent Field</label>
    </td>
    <td class="value">
         ...
         //The output of your frontend_model
         ...
    </td>
</tr>

So go to _toHtml() method of module/adminhtml_form_field_test and wrap the output into div and specify id for it

$fieldId = $this->getElement()->getId();

//your html 
<div id="field id here">
    //your frontend_model html
</div>