There is no actual theory to what dreams are. In fact, there are only three really solid theories that people believe in.

1. Dreams are nothing. They are just neural impulses that your brain tries to make sense of with words or pictures.

2. Dreams are a way of entering you unconscious mind, seeing what you truly don't 'know'. (which was Freudian, I believe)

3. Dreams are a way of viewing and altering the past as you'd like, to ultimately fake yourself into being someone else in your dreams. Or, in laymans terms, a reflection on what you have done that day, or in the past at some point in time, and seeing what you would have otherwise wished.

Truthfully, I believe the Freudian method of dreams, that they are just a way of seeing into your unconscious. (the unconscious mind is so damned interesting!)