During REM (dream) sleep, some areas of our brain are activated and some are de-activated. The following are the activated parts:

• Motor cortex – deals with voluntary motor control
• Cingulate cortex and amygdala – deals with emotions
• Occipital cortex – deals with visual processing
• Hippocampus – deals with memories

Based on this knowledge, we know that dreams draw on our memories and can be filled with movement, emotions,  visual components.

On the other hand, the lateral prefrontal cortex, which deals with rational, high-level decision making, is deactivated. Based on this piece of information, we can understand why dreams are so illogical and irrational.

McCarley, R. W., & Hoffman, E. (1981). REM sleep dreams and the activation-synthesis hypothesis. The American Journal of Psychiatry, 138(7), 904-912. doi:http://dx.doi.org/10.1176/ajp.138.7.904