From bestselling author and former writing professor Dave Farland:
Most editors will warn you against writing too many dream sequences. The problems in writing about dreams are multitudinous. Very often, a new author will write an opening to a story and feel that it is dull, so he or she will spice it up by putting in an action scene—and then have the character wake up at the end. The editor always feels cheated, and then has to wade through the tedious information that the author was trying to avoid. Editors are very aware of that, and so we get angry when we find that we’ve been suckered into a dream sequence. Usually, we get our vengeance: by gleefully rejecting your manuscript.
Now, the technique can work, but it’s hard to pull off. Your description has to be vivid; your characters need to come alive and become strong protagonists; and you need to be very imaginative. So you can open a tale with a dream sequence, but be forewarned.
The only cliché worse than opening with a dream is where the writer tells an entire story or novel and then ends with a character waking from his dream. Don’t do that one folks. If your editor reads it and then shoots you, it’s considered justifiable homicide.
. . . .
The real problem with writing stories set in dreams is best stated as a series of questions: Really? So what? Who cares?
When you write a story set inside a dream sequence, you as an author have two choices. You can let the reader know that it’s a dream, or you hide it. If you let the reader know that it’s a dream, then the reader isn’t likely to care. After all, you as the author are pointing out, “This is just a story.” On the other hand, if you’re hiding that you’re writing about a dream, then the reader will feel cheated when he or she finds out. In either case, you’ve got some real hurdles to overcome.
Link to the rest at David Farland