On the first paragraph of the Wikipedia page, it says that some birds dream as well. Just a little fact nitpick.
Anyways, it’s a very interesting topic which I’m sure has been on everyone’s mind at some point or another.
My opinion on the matter is that dreams developed as a way to develop crisis management for the first species to have the ability. Since there are many dreams in which negative things happen, (whether it ranges from the end of the world to losing your car keys) perhaps it acted as preparation for possible events.
Of course, many dreams could not possibly happen, so perhaps it branched out from fact to fantasy after dreams became a less important factor in survival. Or maybe dreams are often impossible so that members of the species wouldn’t go insane from believing that the dreams were real.
Either way, this species probably recalled dreams a lot better than the average person does today, which contributes that much more to crisis management. Of course, I also believe that people who lived before modern technology (computers, phones, TVs, etc.) remembered dreams better as well.
On interpreting dreams, I presume that the dreams of the first dreaming species were somewhat simpler and did not require extensive interpretation. Since the human brain is almost certainly more developed than that species’s brain, a byproduct was more complicated dreams.
Also, our SC wants to help us, so I believe that it solved very many problems humans had in the stone age. The invention of hunting mechanisms and of the wheel were likely from the dreams of people who encountered problems and worked to solve them. This theory assumes that our SC develops our dreams with purpose.
As for LDs, I’m not sure. However, I did hear a very interesting idea from someone on this website, specifically from this thread.
Basically, it suggests that LDs are unnatural not to have. I think this is an intriguing concept which deserves at least some thought.
Well, that concludes my mega-reply. If you actually read the whole thing, thanks for taking the time! 