The Continual Activation Theory proposes that the dreams result from your brain's need to constantly consolidate the long-term memories.
So, when the external input drops bellow a certain level, the brain starts generating data from your memory, resulting into dreams. This is like a screensaver for your brain, so it won't shutdown completely.

We dream to keep our brains working

<ul>
<li>Stress neurotransmitters in the brain are much less active during the REM stage of sleep even during dreams of traumatic experiences.</li>
<li>This made some scientists to think that one purpose of dreaming is to take the edge off painful experiences to allow for psychological healing.</li>
<li>People with certain mood disorders and PTSD often have difficulty sleeping, leading some scientists to believe that lack of dreaming may be a contributing factor to their illness.</li>
</ul>

We dream to heal

During REM sleeping, the neocortex reviews the neural connections and dumbs the unnecessary ones. 
Without this process, which results in dreams, the brain could be overrun by useless connections.

We dream to forget

Not being limited to the rules of conventional logic, the mind can create infinite scenarios to help you find solutions that you wouldn't think conscious.
This is how August Kekule discovered the structure benzene molecule. Also, this is might be why is better to take a decision after you've slept on it.

We dream to solve problems

Dreams involving dangerous situations are very common and the Primitive Instinct Rehearsal Theory holds that the content of a dream is significant to its purpose.
Whatever you are running from a lion or fighting with a ninja, these dreams help you practice your fight or flight instincts. Also, not everytime these dreams have to be nightmares. Sometimes we can rehearse our reproductive instinct as well.

We dream to rehearse

Each dream, including nightmares contains images from our day-to-day life. Sigmund Freud states that each thing we dream has a symbolic meaning which lead to the fulfilment of our subconscious wishes.
Keeping that in mind, if we interpret our dreams, we can solve some subconscious problems from the root.

We dream to fulfill our wishes

To increase the performance on some certain tasks, sleep is good, but dreaming while sleeping is better.
In 2010, researchers found that subjects where up to 10 times better in getting through a complex 3D maze if they napped and dreamed about the maze prior to their second attempt. Some memory processes can happen only while sleeping and the dreams are a signal that these processes take place.

We dream to remember

health

Health

View full lesson: http://ed.ted.com/lessons/why-do-we-dream-amy-adkins

In the 3rd millennium BCE, Mesopotamian kings recorded and interpreted their dreams on wax tablets. In the years since, we haven't paused in our quest to understand why we dream. And while we still don’t have any definitive answers, we have some theories. Amy Adkins reveals the top seven reasons why we might dream.

Lesson by Amy Adkins, animation by Clamanne Studio.

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