In both states—waking and dreaming—objects are "Perceived", i.e., are associated with subject-object relationship. This is the similarity between the two.
The only difference between the two states is that the objects in dream are perceived in the space within the body, whereas in the waking condition they are seen in the space outside the body. The fact of "being seen" and their consequent illusoriness are common to both states.
The illusion of both the states is established by their "being seen" as "object", other then the self, thus creating a difference in existence. Anything that is "perceived" is unreal, for perception presupposes relation and relation is non-eternal, for the relations of the waking state are contradicted by those of dream and vice versa. As duality is unreal, all objects must be unreal.
As long as the dream lasts, waking is unreal; as long as waking lasts, dream is unreal. The reality of the one is dependent on the reality of the other. But dream is proved to be unreal; hence waking also is unreal.
Dream-relations are contradicted by waking-relations. Waking relations are contradicted by Super-consciousness which is uncontradicted. Non-contradiction is the test of reality.
That which persists forever is real. That which does not and which has a beginning and an end is unreal. Dream and waking have both a beginning and an end. But it may be contented that one thing exists as the cause of the other in the beginning. But as causality itself is baseless, a thing cannot exist as the cause of another. That which has a beginning and an end is changeable and hence non-eternal and unreal, for change implies non-existence in the beginning or at an end. Hence all perceived objects are unreal.
As the objects of the waking state do not work in dream, they are unreal. As the objects of the dream do not work in the waking state, they are unreal. Hence everything is unreal. One who eats belly-full during the waking state feels hungry in the dream state and vice versa. Things are real only in their own realms and not always. That which is not always real is unreal, for reality is everlasting.
The perception of an object is unreal, because the objects are creations of the mind. An object has got a particular form, because the mind believes it to be so. In fact, the objects of both the dreaming and the waking states are unreal. An object lasts only as long as the particular mental condition cognising the object lasts. When there is a different mental condition altogether, the objects also change. Hence all objects are unreal.
Both in the dream and in the waking stale, the internal perceptions are unreal and the objects of external perception appear to be real.
If in the waking state we make a distinction of real and unreal, in dream also we do the same thing. In dream also objects of internal cognition, are unreal. Dream is as real as the waking state. But since dream is proved to be unreal, waking also must be unreal. Dream is unreal only from the standpoint of waking, and equally so is waking to the dreamer. From the standpoint of True Wisdom, waking is as unreal as dream.
Excerpted from Philosophy of Dreams by Sri Swami Sivananda, A Divine Life Society publication; First Edition: 1958.