Other than memory consolidation, it is hypothesized that a large part of why we dream is to work through our daily experiences in a safe environment. Research into this topics suggests that the phase of Rapid Eye Movement (REM) is used by the brain to relive stressful experiences without arousing the hormonal cascade associated with real-life interaction, so that those traumatic moments don’t have a long lasting affect on how we interact with the world. In essence, dreaming strips the emotion away from the memory, providing us with a fresh start to the new day. 

This hypothesis arose from studies comparing those with and without PTSD. In those without PTSD, REM dreamstates were reported with a significant reduction in stress-related hormones, whereas people who reported with a history of PTSD were not correlated with a lowering of stress hormones. When most people go to sleep, they dream in a very low stress state, which allows them to work through their stressful experiences over and over until they eventually lose their power to influence their daily lives. This doesn’t happen in those with PTSD because their stress is so high even in dream states that they aren’t able to work through a traumatic experience.

It’s interesting to think about all the adaptive mechanisms the body has. We’ve been dreaming for thousands of years, yet there hasn’t really been a good explanation as to why. As far as I’m concerned, this makes a lot of sense. 

reference: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC534695/