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I'll bet we process dream experiences much like we process fictional experiences. Our tendency to treat fictional and dream experience as real evidence helps us to credibly believe things that it is in our interest for others to think we believe.
The NYT notes dreams interpretation is self-serving:
Even the nonbelievers showed a weakness for certain heavenly dreams, like one in which God commanded them to take a year off to travel the world. Agnostics rated that dream as significantly more meaningful than the dream of God commanding them to spend a year working in a leper colony. …
Dreamers’ self-serving bias … Once you see how flexible dream interpretation can be, you can appreciate why it has always been such a popular tool for decision-making. Relying on your dreams for guidance is like the political ritual of appointing an “independent blue-ribbon panel” to resolve an issue. You can duck any personal responsibility for action while pretending to rely on an impartial process, even though you’ve stacked the panel with your own friends and will ignore any advice that conflicts with your desires. Charity work, no; margaritas, sí. …
And dreams serve many social functions:
"It may also be a good idea not to tell people about their undesirable behavior in your dreams, as they may infer that your dreams reveal your true feelings about them.” … You should still probably pay attention when, say, your romantic partner tells you about a dream in which you were caught in bed with your partner’s friend.