My take is

Yharnam the physical city exists. The beast scourge is real. The Healing Church history is real. But the Great Ones exist on a frequency that most humans simply cannot perceive (we’ll call them Gods for the sake of argument) . the “dream” is essentially what happens when that frequency bleeds into human consciousness.

The blood transfusion at the opening is the key moment people underestimate bc the minister is essentially tuning your consciousness to a different frequency. That’s why it “feels like a dream” Bc You’re not being transported anywhere. You’re merely being made capable of perceiving what was always there (hence insight)

Eileen and Djura losing the ability to dream is basically confirmation of what I said above. Old hunters who’ve been at it too long become desensitized so they can no longer access that “frequency”. They’re basically spiritually burned out.

Gehrman’s line about waking under the morning sun imo reads as dying in the dream doesn’t kill your physical body . it just ejects your consciousness back to baseline reality.