I don't know why we dream but, then again, neither does anyone else. One researcher concluded (probably frustrated at not being able to find a better answer) that dreaming keeps us entertained at night when we might otherwise go wandering around in the dark and get into trouble. I do know, however, that dreaming does seem to serve an important function...whatever it may be. People typically dream during REM (Rapid Eye Movement) cycles that occur perhaps half a dozen times during the night. If you interrupt those periods, the individual will dream twice as much the following night. Interrupt them for several nights and the individual may begin to have hallucinations...a lot like dreaming out loud.
One of the best theories for why we dream says it's because of a process called the consolidation of memory. The mind, it seems, is a bit like Jell-O in that it takes time for memories to set-up, to solidify as it were. Auto crash victims typically can't recall the accident. They remember what happened a few seconds before but the instant of impact is lost. Dreaming, therefore, may be a way to review the day's events and select out certain items for long term storage.
A theory that I personally prefer, though, has to do with what seems to be an overriding need to make sense of things. Why else would myths and religions be so much a part of the Human experience? Feeling the effects of a cold bed just naturally leads to dreaming of icebergs. The body senses the drop in temperature and says "Ut-Oh...I must be at the North Pole." Then polar bears and Eskimos appear. The brain, after all, is locked up inside a dark, bony knob with no direct access to the outside world. All it knows it knows from electrochemical impulses and all those impulses are the same. The ones coming from your eyes, your ears are indistinguishable one from the other. It's no wonder we have to make up a lot of stuff...improbable as most of it turns out to be. Going to sleep after a full meal might provide another example of how dreams work. As pressure in the abdomen builds, it leads to dreams of demons dancing on your belly. If there's any sort of sexual need as well, those demons might just start to look pretty good. This is how people in the Dark Ages wound up burning at the stake.
This hypothesis, that dreams are the body's attempt to make sense of what it senses, leads to a further, more curious thought. Now pay attention because this is really an amazing insight and - Yes - it will be on the test. A relatively common experience involves something like the bang of a door slamming shut becoming part of a dream. A burglar is prowling around in your bedroom. You come awake and sit up. He pulls a gun and - bang. What's wrong with this picture? Clearly, it's almost impossible to believe that you would be having an involved, drawn-out dream of a burglar and that the door would slam right on cue. This suggests then, that dreams actually occur the instant you come awake and not during REM sleep. Think about it. In either case, it gives an idea of just how difficult it is to make any hard and fast statement regarding dreaming.
It is far less difficult to make statements regarding dream analysis. Although it was popular, years ago, to see dreams as symbols for neurotic tendencies, even Freud said that while a cigar may be a symbol for the male sex organ...it can also be nothing more than a good smoke. The bottom line here is that anyone analyzing dreams is most likely telling you more about themselves than they are about the dreamer.