Dream world is always internal to the dreamer

The objects that are seen in the state of wakefulness are always seen outside the body. It is, therefore, external to the dreamer, while the dream world is always internal to the dreamer. That is the only difference between them.- Swami Sivananda

We actually awaken from our "daydream" mind

That's where the practice of meditation comes in. During sitting meditation, we look directly at the mind's activity and can recognize (on a good day) that we are often completely carried away by our thoughts. Periodically, within the meditation session, and sometimes in daily life, we actually awaken from our "daydream" mind, and experience a clear (if brief and fleeting) moment of being awake, present, without a thick filter of thoughts and pre-conceptions. You can actually do that right now for a moment. - David Nichtern

Whatever appears in the dream world

Whatever appears in the dream world is the reproduction of the waking world. It is not only the reproduction of the objects seen, experienced or dealt with in the present life, but it may be the reproduction of objects seen, experienced or dealt with in any former life in the present world. Therefore the dream world cannot be said to be independent of the waking world.- Swami Sivananda

Famous Dreams

Dreams have often been credited with influencing world changing events. Mary Shelley wrote Frankenstein after having a dream about the monster. "I saw the hideous phantasm of a man stretched out, and then, on the working of some powerful engine, show signs of life, and stir with an uneasy, half-vital motion." Elias Howe was a sewing machine pioneer who greatly influenced the product in the middle of the 19th century. He is recorded as saying that he had a vivid dream about a group of cannibals that were preparing to cook him. They were dancing around a fire waving their spears up and down. Howe noticed that in the head of each spear there was a small hole, which ultimately gave him the idea of passing the thread through the needle close to the point, not at the other end. It was a major innovation in making mechanical sewing possible. The scientist Friedrich August Kekulé discovered the seemingly impossible chemical structure of benzene (C6H6)
after having a dream about a group of snakes swallowing their tails. In 1953, James Watson and Francis Crick discovered the structure of DNA. Watson later reported that the idea came to him after dreaming of a series of spiral staircases. A few days prior to his death Abraham Lincoln discussed a dream with his wife in which he previewed a dead body wrapped in funeral vestments surrounded by hundreds of mourners. He claims to have been told by a soldier that the president had been assassinated.- By BryanJ ; Source: The List Universe

Emphasis on dreams

Even before my trip to Egypt, I had long been fascinated by the work of Carl Jung, with its emphasis on dreams and archetypes. His autobiographical Memories, Dreams, Reflections was one of my all-time favorite books.
It helped me explore the possibility that the world of dreams, far from shutting us off from what we consider
"the real world," actually opens us up to another reality -- a timeless place that allows us to listen to our soul.
- Arianna Huffington,  from: 'Sleep Challenge 2010'

Just as we take our reality

Just as we take our reality within the night dream to be completely real (e.g. if someone is chasing us in the dream we run),  in a similar way, during the "daydream" we take our projections to be real ("that person doesn't like me, I suck at my job, I'm in love and now everything is going to be perfect, I need chocolate ice cream right now"). We rarely, if ever, have a good look at the quality of our mental activity to see how much of it is fabricated and distorted, and how much of it is accurate and clear. - David Nichtern

Nightmares vs. Night Terrors

Ernest Hartmann has published many books and papers on the topic of nightmares. His work has indicated that the most common theme of a nightmare is being chased. Adults are commonly chased by a male figure, while children face animals or fantasy creatures. Nightmares are less common in adults and children experience them most often between the ages of three or four and seven or eight. About 5-lO% of people have nightmares once a month or more frequently. Hartmann’s work suggests that nightmares directly correlate with daily activities and are an indicator of fear or anxiety that needs to be confronted. Some common triggers can be drug abuse, traumatic events, or the loss of a loved one. Night terrors are quite different from nightmares. They occur during the first hour or two of sleep and during the non-rapid eye cycle. Loud screaming and thrashing is common. The sleeper is hard to awake and usually remembers no more than an overwhelming feeling or a single scene. Night terrors are much less common than nightmares. Children from the ages of two to six are most prone to night terrors, and they affect about 15% of all children.- By BryanJ ; Source: The List Universe