Ive always thought dreams only occur in REM sleep. I think they can be random at times and also informative at others...One book I read suggested that throughout our regular day we go through all these experiences... At the end of the day when you go to sleep, all these experiences pop up in dreams for you to analyze. Then the next day if you were to try and do whatever you did the previous day, you would be better at it. And no I don't think it explains your true desires...at least not all the time...so people shouldn't dwell on their dreams

Here's something I found online: Dreams are the images, thoughts and feelings experienced while asleep, particularly strongly associated with rapid eye movement sleep. The contents and purpose of dreams are poorly understood, though they have been a topic of speculation and interest throughout recorded history.

Freud also suggested that bad dreams let the brain learn to gain control over emotions resulting from negative experiences that have occurred in normal walking life.

Here's a choppy, not very well made, video clip basically explaining in technical terms why and how we dream. They talk about Freud and Hobson's theory's on dreaming. Kinda hard to watch but theres some decent info in it. http://youtube.com/watch?v=f0R9vCFAAEs