The dream world can be said to be a dimension of its own, separate from any other. It can be accessed by dream seers. At first glance, the dream world looks like an exact replica of the real world.
Watanuki regularly meets Haruka Domeki in the dream world. This is the only way they can meet, as Haruka actually passed away some time ago. Haruka also visited Yuuko in a dream once.
Watanuki also encounters Sakura (clone) in the dream world after her soul is sent there in response to a wish she made.
Only the soul can enter the dream world, not the body. This was explained by Yuuko when Sakura's soul and body were separated. Sakura's soul entered the dream world, and her body went to Celes.
There is a glass cannister in the shop. When Sakura's soul entered the dream, Yuuko told the travelers that Sakura was no inside it, and that within the container was the world of dreams.
The dream world can also be used to travel to other locations without the body. Watanuki used a dream to obtain a red pearl from a Yaobikuni to grant Spider Lady's wish as he could not leave the shop.
Yuuko left a message for Watanuki in a dream, only to be found when the time is right.
Princess Tomoyo of Nihon said in Tsubasa Chronicles that dream seers can encounter each other while in the dream world, even though they are from different worlds, and in fact she once met King Ashura of Celes that way.
It is notable that items taken by an individual while in the dream world can be transferred into the real world when the dreamer awakens. Sakura Kinomoto gave Sakura Li her star staff in a dream.