I just read an interesting article from the Neuroscience Education Institute comparing schizophrenia to the dream state.
In both REM (dream) sleep and in wakefulness in schizophrenia, the dorsolateral prefrontal cortex is relatively deactivated. This may be why the dreams of normal subjects and the delusions of schizophrenics seem real. In normal wakefulness, the dorsolateral prefrontal cortex is fully engaged.
"Dreams are brief madness and madness a long dream"