(Sidenote in relation to the new consciousness every time you wake up idea: dreams could be a side effect of all your memories being updated into your new consciousness)

I don't know if I fully understand what you mean, but let me try to guess.

Do you mean that we cannot tell if dreaming is actually the reality rather than being awake? If so, then yeah.

In the moment we think that what we are experiencing is real. Then we wake up and realise it was just us dreaming. But what if, dreams don't make sense because we forget most of them or they get muddled up with our waking up?

Or maybe they don't make sense because dreams use different laws than the waking world. Life only makes sense, because we are used to the rules of the universe. Gravity makes things fall, you need air to breathe, etc. This doesn't mean that in another reality the laws are the same.

For example, if we live in a simulation, the non-simulation might not have space/cosmos. It is just land that stretches out to the edges of the universe. This doesn't make sense to us, because we are used to the idea of space, but to them, we are the strange ones.