Are dreams real?

A dream is a real experience, and its scene has no place in the shared record. In OPH certain organized processes in which an observer reads its own state and feeds the reading to its own repair are experiences. A dreaming brain keeps doing that, so a dream is an experience in the same sense as waking life. What a dream lacks is public standing. A fact is a record that survives every comparison anybody is entitled to make, and the contents of a dream never meet those comparisons, because an observer's readings of its own state are private by construction. During sleep the senses that would test the scene against the outside world are largely shut, so nothing contradicts it. On waking, the records you share with your surroundings disagree with the dream, and the dream gives way.

Also in Chapter 11: What Does Everybody Actually End Up Holding?.