In the notifications settings, my selections look like the below, however I do not get any emails when builds fail unless they fail continuously for a week.
How do I “follow” a dataset so I can get emails when builds fail right away?
Have you tried putting a health check directly on your dataset? You can set up the option to make it “critical” after x amount of consecutive failures (in your case it would be 1) and you should automatically be subscribed to watch it once you make this health check.
More documentation here: https://www.palantir.com/docs/foundry/data-health/overview