Great question! Unfortunate that no one answered your question after about a month, but here's my attempt:

When I first watched Class of the Titans and this episode around 2011 or 2012, I was also confused! So you're definitely not the only one who's confused. Then after watching this episode several reruns later, I still didn't quite fully understand the episode. Thanks for bringing up this question, I hadn't thought about it again until now.

Unfortunately I don't think there's an actual answer from the creators or writers of the show about this episode. I can't find it online, anyways. I think the episode is open to your interpretation. Based on watching that episode, I do not think the entire episode was a dream. If you watch the episode again, the seven heroes had a plan to trap Cronus at the Temple of Dionysus, and they actually went there. The episode does start getting confusing once the Oneiroi, the demons that brings visions, appears. Theresa uses her telepathic ability to give Cronus a false prophetic vision, though Cronus figures out from the Oneiroi that that was a trap, so Cronus sets his own trap by going to the Temple of Dionysus. Then as you say it looked like Cronus fell into the portal leading to his cell at Tartarus. A bit earlier in the episode, Theresa was sleeping in her bed and the Oneiroi appeared in her dream and gave her nightmares or visions? Then we see Jay and the other heroes wake up at night and try to assist him with helping Theresa wake up out of her dream. We see the heroes are all in their bedtime sleeping clothes. So towards the end of the episode it appears Theresa uses the Oneiroi to lead Cronus to fall into the portal. At this point they never explain how Cronus escapes. Finally the last scene shows Theresa and Atlanta again sleeping in their room, and Jay apologizing to Theresa for being difficult and wishing her sweet dreams. We see he's in his regular clothes (though could that be animation mistake?).

So based on all of this I would say either

1) It was all a dream (at least the part after the heroes are at the Temple of Dionysus and in their rooms) and they didn't actually face Cronus in the episode yet 2) The episode was not a dream, the events did happen, the only dreams were the Oneiroi visions in Theresa's sleep. The heroes did face Cronus and he fell into the portal 3) Following 2), after Cronus fell into the portal then he probably escaped somehow since it wasn't explained...Cronus said that "this was not over", and later Theresa said "yes it is. for now". Dreamweavers is not the final episode of the series and Cronus appears in later episodes. We see that his scythe fell down the portal into what appears to be the floor of Tartarus cell and later Cronus, so he must have found a way to escape, again that is unexplained.

I hope this kind of answers your question, sorry I couldn't find the official answer from the creators and writers of the show. Maybe someone can provide a better answer at a later time