Nightmares appear to be more common in those who have intense reactions to stress. When our time awake is frightening or remains unpressed, the sleeping brain may produce horrible images to awaken a sleeper.
The more trauma we have in our lives, the more likely we are to experience anxiety and nightmares.

Trauma and nightmares

If an action against the threat is irrelevant or impossible - as it would be if the trauma happened long ago - then emotion-coping efforts like dreaming may be useful to get on with our lives.
If the threat will be encountered repeatedly, such as abuse, then waking problem-solving action is necessary.

The effects of trauma on sleep

Nightmares happen later in sleep when dreams are longest, and the content is bizarre and emotional. Nightmares wake the sleeper into full consciousness and clear memory of the dream. It temporarily relieves the negative emotion.
As we develop the skills for managing negative emotions while we are awake, nightmares will reduce in frequency.

Nightmares 

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"All of this is evidence that the mind, although asleep, is constantly concerned about the safety and integrity of the self."
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Rosalind Cartwright - also known as the Queen of Dreams - is a leading sleep researcher. In <a href="https://www.amazon.com/gp/product/0199896283/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&amp;tag=farnamstreet-20&amp;camp=1789&amp;creative=9325&amp;linkCode=as2&amp;creativeASIN=0199896283&amp;linkId=d219b9c44160a32c42325a4cd07f7f65">The Twenty-four Hour Mind: The Role of Sleep and Dreaming in Our Emotional Lives</a>, she explores the role of nightmares and how we use sleep to protect ourselves.
When our time awake is frightening or remains unpressed, the sleeping brain "may process horrible images with enough raw fear attached to awaken a sleeper with a horrendous nightmare." The more trauma we have in our lives the more likely we are to experience anxiety and nightmares after a horrific event.
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The common feature is a threat of harm, accompanied by a lack of ability to control the circumstances of the threat, and the lack of or inability to develop protective behaviors.
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The strategies we use for coping effectively with extreme stress and fear are controversial. Should we deny the threatening event and avoid thinking about it better than thinking about it and becoming sensitized to it?
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One clear principle that comes out of this work is that the effects of trauma on sleep and dreaming depend on the nature of the threat. If direct action against the threat is irrelevant or impossible (as it would be if the trauma was well in the past), then denial may be helpful in reducing stress so that the person can get on with living as best they can. However, if the threat will be encountered over and over (such as with spousal abuse), and direct action would be helpful in addressing the threat, then denial by avoiding thinking about the danger (which helps in the short-term) will undermine problem-solving efforts and mastery in the long run. In other words, if nothing can be done, emotion-coping efforts to regulate the distress (dreaming) is a good strategy; but if constructive actions can be taken, waking problem-solving action is more adaptive.
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What about nightmares?
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Nightmares are defined as frightening dreams that wake the sleeper into full consciousness and with a clear memory of the dream imagery. These are not to be confused with sleep terrors. There are three main differences between these two. First, nightmare arousals are more often from late in the night's sleep, when dreams are longest and the content is most bizarre and affect-laden (emotional); sleep terrors occur early in sleep. Second, nightmares are REM sleep-related, while sleep terrors come out of non-REM (NREM) slow-wave sleep (SWS). Third, sleepers experience vivid recall of nightmares, whereas with sleep terrors the experience is of full or partial amnesia for the episode itself, and only rarely is a single image recalled.
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Nightmares abort the REM sleep, a critical component of our <a href="https://www.farnamstreetblog.com/2017/03/twenty-four-hour-mind-rosalind-cartwright/">always on brain</a>, Cartwright explains:
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If we are right that the mind is continuously active throughout sleep-reviewing emotion-evoking new experiences from the day, scanning memory networks for similar experiences (which will defuse immediate emotional impact), revising by updating our organized sense of ourselves, and rehearsing new coping behaviors-nightmares are an exception and fail to perform these functions.
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The impact is to temporarily relieve the negative emotion. The example Cartwright gives is "I am not about to be eaten by a monster. I am safe in my own bed." But because the nightmare has woken me up, the nightmare is of no help in regulating my emotions ( <a href="https://www.farnamstreetblog.com/2017/03/twenty-four-hour-mind-rosalind-cartwright/">a critical role of sleep</a>). As we learn to manage negative emotions while we are awake, that is, as we grow up, nightmares reduce in frequency and we develop skills for resolving fears.
It's not always fear that wakes us from a nightmare. We can also be woken by anger, disgust, and grief.
Cartwright concludes, with an interesting insight, on the role of sleep in consolidating and protecting "the self.":
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[N]ightmares appear to be more common in those who have intense reactions to stress. The criteria cited for nightmare disorder in the diagnostic manual for psychiatric disorders, the Diagnostic and Statistical Manual IV-TR (DSM IV-TR), include this phrase "frightening dreams usually involving threats to survival, security, or self-esteem." This theme may sound familiar: Remember that threats to self-esteem seem to precede NREM parasomnia awakenings. All of this is evidence that the mind, although asleep, is constantly concerned about the safety and integrity of the self.
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<a href="https://www.amazon.com/gp/product/0199896283/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&amp;tag=farnamstreet-20&amp;camp=1789&amp;creative=9325&amp;linkCode=as2&amp;creativeASIN=0199896283&amp;linkId=d219b9c44160a32c42325a4cd07f7f65">The Twenty-four Hour Mind</a> goes on to explore the history of sleep research through case studies and synthesis.
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"All of this is evidence that the mind, although asleep, is constantly concerned about the safety and integrity of the self." *** Rosalind Cartwright - also known as the Queen of Dreams - is a leading sleep researcher.

Warnings From Sleep: Nightmares and Protecting The Self

Trauma and nightmares

The effects of trauma on sleep

Nightmares

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