Though we commonly view dreams as being unreal, especially when compared to waking-state phenomena, very rarely do we do so while we are dreaming. We dream that we aren't dreaming, seldom recognizing this at the time. Strange, anomalous, bizarre, and impossible things regularly happen in dreams, but we do not very often take their presence as signs that we are dreaming.
We tend to view dreams from the perspective of the waking state, but how often do we do the opposite? Rarely. Usually we get uneasy when we hear something about how the waking state is actually not fundamentally all that different than the dreaming state, as if on guard against any suggestion or implication that we might be dreaming right now. But, in a very real sense, we are dreaming right now.
We are, for example, not seeing our hands, but rather are experiencing a neurological unfolding, optical and otherwise, the resulting mental imaging of which represents, with an inevitably questionable accuracy, that for which the word "hands" stands. Of course, this is not really news; we've known for quite some time that what we see is not what we think we are seeing, but our knowing of this is mostly just intellectual.
It's not that our senses deceive us, but rather that they cannot provide a direct apprehending of an object, regardless of our assumption that their readout actually does accurately represent what's "out there." This is further complicated by the fact that objects are not really objects - that is, they don't have a truly objective, independently existing existence.
This is more obvious in dreams - if we sufficiently attune ourselves to their detailing and shape-shifting flux - because the less-than-solid reality of things is more tangible in the dream-state. A single thought can alter an entire dream, and not just cognitively; buildings may disappear, people may change form, landscapes may radically alter, and all in the blink of an "I." If we are awake in our dreaming, we can witness this, and recognize something essential about the the actual process of perception.
Dreaming is the feature presentation of perception with no external sensory input. The waking-state, by contrast, features perception with external sensory input. The body we have in dreams can be, and sometimes is, very different than the body we have in the waking state, but the mind we have in dreams is pretty much the same mind that we have in the waking state. Our self-sense is basically the same in both states; the activities, landscape, and persons may differ greatly, but the eyes - our "I" - through which we see it all remain the same. Whole lotta dreaming going on...
To say that life is a dream is not to say that it is not real, for is there anything more real than dreams? Some might say the dreamer; but in the same sense that seeing creates the illusion of a seer, and hearing creates the illusion of a hearer, dreaming creates the illusion of a dreamer. Wake up during a dream, look around and within, and realize that everything in the dream, including the role that you're playing (probably the lead role), is part of the dream, and then ask: "If all of this is a dream, then what am I?"
A profound question this is, asking in essence for something more real than an answer. Meanwhile, dreaming goes on, spinning out with marvelous creativity the dramatics of a dreamer and all the various props - human and otherwise - with which the dreamer can interact. This can range from a tempest in a me-knot to a sublimely liberating encounter with apparent others that leaves nothing in its wake but untranslatable beauty. Dreams can yield meaning, and often very helpful meaning, but the deeper we go into them, the more mysterious they become, finally transcending all explanation, inviting us into boundless revelation.
Undreaming eyes don't see what's actually happening, but rather see through it. To see through the dream is to see beyond both subjectivity and objectivity, to dwell where inside and outside are lovers, to recognize that all that can be known is but absolute mystery, to enter the Emptiness that both holds all and is all. To see through the dream is to wake up so fully that the lights cannot be switched off.