The Mind-Training says, "Regard all events as if they were dreams." How do dreams appear? The most productive method to explore dreams is by being aware of dreaming while dreaming. Start by reflecting on how things appear in dreams. Let's take as a working hypothesis, as Buddhists do, that dreams emerge from your unique psyche and past and are not part of a big generic dream that belongs to everybody. In Buddhist theory, dreams are a flowering of mental propensities, or seeds, an idea that corresponds roughly to the Western theory of the contents of the subconscious. Suppose I dream that I am speaking before a group of people. From a waking perspective, I would say that the people in this dream don't exist independently from the dream. Yet when I am dreaming, people appear to be just as objective and separate from me as people seem during the waking state. In a dream, if somebody insults me, I get angry just as though this person exists objectively. In non-lucid dreams, demarcations between subjects and objects appear very real. When I get happy in a dream, that happiness is not significantly different from the happiness I experience in the waking state. If someone punches me in a dream, it seems very real. While there seems to be an objective environment, in a dream objects and environments actually exist in relationship to me, the dreamer. Dream and dreamer are interdependent.
In the Buddhist analysis, there is an analogy between the non-lucid dream state and our usual waking state. What we assume to be absolutely real in a dream and in the waking state is not as it appears. The Buddhist analysis of our deluded waking state goes deep into the analogy between waking and dreaming. From the perspective of the waking state, it is easy to agree that what appears real and concrete in the dream is illusory, despite the fact that from within the dream it can be proved to be "real." In my dream, I can touch Jack or ask him if he is real and he will say yes. Within the context of a dream, that is good proof. From the perspective of the waking state, I see that objects in the dream have no objective existence, but are dependent on me, the dreamer. Within a dream you can be absolutely positive you are not dreaming. The exception to the delusion of mistaking the dream-state to be real is to be aware, within the dream, that you are dreaming.
From the relative state of being awake, it is possible to reflect upon the dream-state as being a state of delusion. The Buddhists push past the state of relative wakefulness to actual wakefulness. The word "buddha" means "one who is awake." From the perspective of a buddha, the normal "awake" state is a relative dream state and, additionally, the dream is deluded. Those of us who have not yet become buddhas can begin to appreciate the relationship between dream and dreamer by practicing lucid dreaming.
--from Buddhism with an Attitude: The Tibetan Seven-Point Mind Training by B. Alan Wallace