In dreams the physical landscape doesn't have to be stable. Yesterday, for example, a field where people were launching large model airplanes caught fire and I could put it out by rolling up part of a rug that was inside a building I was in. We had to evacuate, but weren't sure of where the fire was.
The mind forges the dream landscape out of its own imagination. In real life the world takes care of its own consistency: the mind doesn't have to worry about the consistency of everything. So much of the spatial and narrative incoherence of dreams comes from this amorphous quality of what is generated by unconscious thought without real life constraints of time and space. We think of this quality as mysterious, but it is the product simply of the lack of constraint. The mind is not constructing a place for the dream body will exist in geometric terms, but according to the dictates of phenomenological reality.