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When you are dreaming at night, everything appears in your dream is an illusion or creation of your mind. Nothing is real. However, the reaction you take in your dream is real. For example, you dream something very scary such as a killer is chasing you. Then, you feel scared and probably your muscles are tighten up. You sweat.
It is a very interesting phenomenon. You create your reality based on functions you create. Your mind creates your reality from illusions.
If we proceed to the next level of consciousness, we can see clearly that we were still asleep with so called waking consciousness.