What dreams are made of.

Dreaming is so basic to human existence, it's astonishing we don't understand it better. It consumes years of our lives, and no other single activity exerts such a powerful pull on our imaginations. Yet central as dreaming is, we still have no idea why we dream. Freud saw dreams as convoluted pathways toward fulfilling forbidden aggressive and sexual wishes; frightening dreams were wishes in disguise—wishes so scary, he believed, they had to transmute themselves into fear and masquerade as nightmares.
Later came the idea that dreams are the cognitive echoes of our efforts to work out conflicting emotions. More recently, dreams have been viewed as mere "epiphenomena"—excrescences of the brain with no function at all, the mind's attempt to make sense of random neural firing while the body restores itself during sleep. As Harvard sleep researcher Allan Hobson puts it, dreams are "the noise the brain makes while it's doing its homework."
Dreams-which Sigmund Freud called "the royal road to the unconscious"-have provided psychologists and psychotherapists with abundant information about the structure, dynamics, and development of the human personality. Several theories attempt to explain why we dream. The oldest and most well-known is Freud's psychoanalytic theory, elucidated in The Interpretation of Dreams (1900), in which he suggested that dreams are disguised symbols of repressed desires and therefore offer us direct insight into the unconscious. According to Freud, the manifest content of dreams, such as daily events and memories, serve to disguise their latent content or unconscious wishes through a process he called dream-work, consisting of four operations. Condensation refers to the condensing of separate thoughts into a single image in order to fit the latent content into the brief framework of a dream. Displacement serves to disguise the latent content by creating confusion between important and insignificant elements of the dream. Symbolization serves as a further effort to evade the "censor" of repressed desires by symbolizing certain objects with other objects, as in the case of phallic symbols.
Not all dreams reflect daily life. Reports indicate dreams have foretold events upcoming in the dreamer's life, including death. One study reports that 70 percent of women successfully predicted the sex of their unborn child based upon dreams.

To summarise the entire article, it can be said that dreams are windows to the sub conscience, a mere vehicle of carrying across thoughts and interpretations that a person cannot or choses not to, when awake.


References:
Dixit, J., 2007. "The Dream Robbers", Psychology Today [online] Available: http://www.psychologytoday.com/articles/200710/dreams-night-school [Accessed 4th November, 2010]