I've been experimenting with Buddhist meditations and sleep for about ten years now.
This post could easily stretch into a few thousand words long containing my ideas, experiences, insights, and guidance.
I'll try to answer your question about the overall point in regards to dream practice in Buddhism as well as Taoism first, then I'll talk about practice.
In Buddhism, once you have penetrated throught the conception skandha you are always aware in your dreams. "Penetrated through the conception skandha" means you have achieved initial enlightenment. It means you have attained a stable state of emptiness understanding, seeing the heart of reality.
"Buddha says that someone who has freed themselves from the form and
sensation skandhas, but still operating within the conception skandha,
can be compared to someone talking in their sleep. When you are
talking in your sleep you are still operating with thought. Bystanders
sitting by your side can understand what you are saying and doing, but
you are not the complete master of your state since you do not
actually know what is going on. Although you are at an advanced stage
of attainment, you still are not in control of the situation like a
master! If you can break free of the conception skandha, your
dreamlike thoughts will dissolve, and your mind will remain the same
whether you are awake or asleep. Thus, we sometimes describe this
stage by saying you will know no crudities in your mind when you
sleep. You cannot accurately say that ìdreams will disappearî at this
stage, which is what you often hear. Rather, it is more proper to say
that whether you are asleep or awake, your mental realm will always
remain the same. If you dream you will still remain so clear that you
can even make decisions. A Chinese saying runs, ìSages have no dreams,
and dullards have no dreams,î and the phrase that ìsages have no
dreamsî refers to the fact that there mind is always clear even during
the state of sleep."
--from Conception Skandha part of Chapter 5 of William Bodri's book "How to Measure and Deepen Your Spiritual Realization"
In Taoism, this is equivalent to the state where your shen is full and you will no longer be able to sleep. Many practitioners at this stage (Buddhist, Taoist, or Christian) when they achieve this level of "mental clarity" (a little bit of shen) cannot sleep for days and wonder if they are going crazy. (The solution to this common issue, which happened to me last night, is to just use that special time to do calming meditation some more. Don't worry too much about worldly sleep [unless you are experiencing Zen sickness, which is a similar phenomenon that is best faced by taking some sleep medicine to forgo brain damage through over-creativity].)
From this point of view, people say that you no longer dream anymore;
everything will seem clear whether you are awake or asleep. While this
is not a perfect match of realms, we can begin to understand that
Chuang Tzu also knew of this stage of cultivation, for he wrote: He
does not dream while asleep, does not worry while awake, does not take
satisfaction in eating, and his breathing is deep.
The above is from William Bodri's book again same chapter about clarity in dreams due to breaking the conception skandha. Please see Tao & Longevity by Master Huai-Chin Nan if you want to understand the energetic connection. Master Nan himself was a Taoist Buddhist Esoteric and Zen Buddhist master and he said that for our generation of analytical people, no less is sufficient for our information-addicted minds to be cautious and self-aware along the path..
From these passages, I hope people can be alerted to the importance of dream awareness.
In Tibetan Buddhist books, it is also exclaimed that if you cultivate within your dreams, your power of cultivation is tenfold!
This is a loud fact that was emphasized very much whenever I managed to succeed in meditating during my lucid dreams (3 times I can clearly remember over the past years but probably more I cannot). Each time, I felt fundamentally transformed, mainly because I made it so (long explanation).
People that master the ability to be clear in their dreams, thus should not waste such opportunities.
And people that are not yet aware, should train themselves to be so! Lucid dreams are emotionally healing and having them is not only a means of cultivation but a sign of proper cultivation as the book I excerpted indicates and Buddha's Surangama Sutra also indicates!
I highly reccommend the book I excerpted, you will find ample answers to satisfy your questions about the Tao, cultivation, dreaming, and how it all still falls under/works with Buddhism.
So what techniques do I reccommend to achieve lucid dreams (LD)?
Honestly, I'm still conflicted between causing them through cultivation.
Nonetheless, LDs positive effects are undisputed (in the scientific community at large now as well)[google it].
It's easy to be practicing awareness meditation like a dog and then fall asleep like a dog, waking up not even remember a dream.
It takes finesse, gentleness... and outcome detachment to succeed.
Out of the many techniques I'm going to end my post here with I would reccommend the WILD technique. I would also reccommend combining all the other techniques but not too many. I have taken them from many different traditions and these are the best out of the many I have experimented with in the past 10-15 years.
- WILD: go to sleep for at least 3 hours. Wake up and meditate for 20 minutes using one meditation technique (try either breathing or something below) and the go to sleep again. you will enter REM for a longer time and it will be easier
- affirmation: before you go to sleep affirm your intention. I reccommend binaural assistance for this, especially during a WILD session.
- Tibetan Buddhism: imagine a green light in your right hand, put it over your heart. Imagine a white light over your left hand, put it on your throat. Fall asleep being clearly aware, imagining yourself as your deity. All of these can be done simultaneously but they were taught as separate practices.
- breathing meditation: for some reason I had a lot of spontaneous LDs just watching my breath
- vipssana: i had a few LDs just watching my thought. Two where I was really tired physically due to PE and long school day but aware due to meditation practice, fell asleep, and I went through hypnogogia into dream state.
- Toltec hand watching: intend to yourself, i will watch my hands. this is extremely powerful. at least 10 LDs like this in 2014. see Carlos Castaneda.
- reality testing: ask yourself every hour "am i dreaming?"
- reality testing Tibetan Buddhist edition: realize you ARE dreaming. You ARE always in a dream. What kind of dream is this one? test. once you master lucid dreaming manipulation you will be able to master all realities similarly. (no jumping off buildings now!)
- dream incubation: this worked only when it was gentle and not pushed. even with fantasies of girls, I would have a pleasant, easy-going dream relationship of that girl when i had a light or gentle fantasy. if it was a very erotic fantasy, the dream sometimes about her or some other girl with element of violence.
- mantra meditation: my favorite mantra (see if you can guess from my picture)... i've had countless healing dreams when i fell asleep to this, blissful and full of light. sometimes when i needed it the most, 2 times spontaneously healed of injuries and fatigue from a 20min mantra nap.
most effective if you have faith in that Buddha and are not doing it out of greed/fear/delusion. it will fail if you are doing it for the result.
- polyphasic sleeping: almost forgot this one. trick: the smaller your "core sleep" the more awesome your short naps will be! please don't do this if you are below 24. you don't want to mess up your growth spurt like i did -_-'
have fun researching!