The brain draws from memory whatever it needs to build the dream world (what we see, what we hear, what we feel, etc.). Dreaming is also entirely a mental experience. It is an internal phenomenon. And yet the dream creates for us a visual representation of ourselves to experience this new world.
It’s interesting to me that the mind feels “forced” to include a portrayal of the self, an identity for us to experience the dream, even if we don’t actually need it. Now, I’ve had my fair share of bodiless dreams like everyone else but, even in these dreams, the awareness in me is not actively participating in what’s happening. There is still a dream character (recognized by me as my dream character) that lives the events of the dream; the bodiless perspective serves nothing more than a third-person point of view that observes a string of events of which I’ve got no personal involvement, yet I feel them.
Why does this happen? Again, it isn’t needed. There is no physical input going on outside that produces what is actually happening. It is all in our heads. For example, I can imagine a table as it is and not through a perspective of another body looking at a table; know what I mean? We can imagine without the requirement of a copy of ourselves in that mental image.