I suggested that dreams are simulations of the world created by our perceptual systems. The introduction to waking perception that you just read will help you understand this theory.
Consider, first of all, how sleep modifies the process of perception. During REM sleep, as you learned in chapter 2, sensory input from the outside world and body movement are both suppressed, while the entire brain is highly active. The activity of the brain raises certain schemas above their perceptual thresholds. These schemas enter consciousness, causing the dreamer to see, feel, hear, and experience things not present in the external environment.
Ordinarily, if you were to see something that wasn't really there, contradictory sensory input would rapidly correct your mistaken impression. Why doesn't the same thing happen during dreaming? The answer is because there is little or no sensory input available to the brain for correcting such mistakes.
Source: Exploring the World of Lucid Dreaming, Pages: 127
Contributed by: David