The activation-synthesis theory was created in the 1960's and the 1970's by Alan Hobson and Robert Mccarley. This theory states that dreams reflect brain activity in sleep. During REM sleep our brains generate random neural signals. These signals activate different parts of our brains. According to the activation-synthesis theory, dreaming is our body's way of interpreting these signals. Diving into more detail, REM sleep is turned on by the neurotransmitter acetylcholine. This neurotransmitter activates nerve cells in the pons, which sends signals to the thalamus. The thalamus then sends signals to the forebrain which attempts to interpret the signals in the form of a dream. This theory was important to psychology because it took a more reasonable approach to explaining why we dream. Prior to the activation-synthesis theory scientists such as Sigmund Freud believed that dreaming used symbols to illustrate how we wish things could be. The development of the activation-synthesis theory allowed us to approach dreaming in a more scientific manner, and disproved any incorrect assumptions about why we dream.
The activation-synthesis theory applies to many dreams I have encountered. I often notice that dreams tend to be unpredictable, and hard to recall in the morning. The idea that dreaming is simply randomly generated neural signals explains the haphazard pattern in my dreams. This leaves me with a few questions about dreaming. Why do our brains send out these random neural signals? Are the signals sent randomly or in unidentified patterns? Is there any relation between our dreams and our emotions? Why did we evolve to incorporate dreams? We may not be able to answer these questions, but some scientists have developed hypotheses that better make sense of dreams. The link below shows short sections of a lecture in which a professor explores some theories of dreaming. One interesting idea is that Freud's Dream protection Theory may still play a role in dreaming. The pattern of dreaming could be related to our emotions.