I suggest you look into lucid dreaming, hypnosis and shared dreaming.

the brain is incredibly complex and only 1/15th of what we consider “conscious thought” is truly conscious.

When we sleep, some parts of our brains remain active. historically we think it did this to keep a eye on the external stimuli(senses) so we can react to predators.

but as we have evolved, our bodies and brains changed. we still try to process those sensory inputs, but we we sleep we stop receiving most of them, so our brain begins to fill in the blanks. as we do, our brain begins to recall trauma and pleasure, to try and process them. they are always ever present anyways, shaping how we experience reality. in this shapeless, sensory less space, its the primary drive of effectively internal hallucinations.

as we sleep, we process those emotions by expierencing, emotionally drive hallucinations by our brain.

how do we know this? it’s been documented via sensory deprivation experiments. the overlap with drugs such as LSD is uncanny and it led to a much deeper understanding of both psychology and dream studies.

this is also why we now know “phantom limb” disorders are a result of psychological effects, not physical ones. the brain is fully aware of the lack of tissue, our psyche is the one that refuses to accept it does not exist. this is why people born with missing or deformed limbs do not expierence the same.

all this said, dreams prevent us from going insane. without them, rest feels less fulfilling as our brain fails to relax. even a nightmare is better for the overall psyche, then endless silence.