Nightmares and happy dreams have one thing in common, they are both dreams. It cannot be the fact that it is a dream that determines whether it is happy or not. It also can't really be a matter of what the dream depicts as happening.
A dream of a beach with a nice sunset and lapping waves might be regarded as a happy dream, while a plane crash with broken bodies strewn upon the ground might be considered an unhappy dream. But this is not really what makes a dream happy or not. If you think the form of what happens determines whether you are happy, you are being a victim of the world and are blind.
There can be an illusion of happiness, whereby a dream takes on a form of happy things, or things we think of as positive or uplifting. And there can be an illusion of unhappiness, whereby a dream takes on forms we do not like such as things going wrong. And likely we will decide only to be happy along with happy things, and to be upset around the bad stuff.
But what really determines whether we are in a nightmare or a happy dream has a lot more to do with one factor alone: HOW REAL IS IT. It's not a matter of what the dream is about or what it depicts, which is a trap easily fallen into. Dreams going in your favor are a trap just as much as evil doings.
Dreams are always essentially always dreams of death. They are dreams of death because reality, which is the opposite of dreams, is always eternal life. Every dream has underpinnings of separation and conflict.
"Death is the central dream from which all illusions stem."
So in effect, every dream you have has its basis in the separation from God, in opposition to God's nature, and in the idea of an opposite to eternal life. The themes of dreams, even the ones with the seashores and sunsets, are still rooted in some degree of separation.
What makes a dream a dream is that it opposes reality. It is a protest against reality. It's an attempt to turn reality into something unreal, something impossible, and something unnatural. Even if a dream is not real or is recognized as not real, it will always feature things happening which cannot happen in God's reality.
It isn't so much the fact that strange and unnatural things happen in dreams, because if you were to recognize it's just a dream you would laugh it off. It's more to do with the fact that you take it seriously.
A dream which is believed to be real, is given far more weight than a dream that is recognized as nothing. A real dream becomes a nightmare. If it is real, then everything that happens in it is true. If it is true, then all the experiences are real threats, real dangers, real awful situations, and real horrors.
The mind then experiences them as if reality is now a horrifying, twisted, unnatural but nevertheless real thing. As if it's true that someone has died a horrible death, or its true that everyone died in the plane crash, or its true that there was a revolting murder. Only IF IT IS TRUE does the dream upset you.
What ACIM is telling us then, is that since we're appearing to live in a dream world, a seemingly waking dream of Earth, if we believe it is real and true it will seem like a nightmare. Sometimes it will seem tolerable if the events taking place are regarded as safer, but it won't be long before it comes up with some new problems or disasters.
"The world was made that problems could not BE escaped. Be not deceived by all the different names its roads are given. They have but one end. And each is but the means to GAIN that end, for it is here that all its roads will lead, however differently they seem to start; however differently they seem to go. Their end is certain, for there is no choice among them. All of them will lead to death. On some you travel gaily for a while, before the bleakness enters. And on some the thorns are felt at once. The choice is not WHAT will the ending be, but WHEN it comes."
You can be sure then that the world is setup to be highly problematic, with temporarily illusions of reprieve and peace, in between vast hordes of horrors and stresses. But what determines whether it UPSETS you is whether your mind believes it is REAL or not. What makes it a living hell, is not so much what happens, but WHETHER it really happens. Whether it is true or not.
A happy dream then isn't so much a dream where nice stuff happens and you have a gap in between the world going to shit, because the world is permanently shit. It's more a matter of a mindset or way of looking at the world, in which it is not GIVEN reality or truth or power, and so it is recognized as not having any.
It cannot upset you because you don't choose to use it to do so. It does not hurt you because you know you can only hurt yourself by believing the world is capable of real harm. It cannot make you sick or die unless you use the world as a prop to pretend that you, as an immortal being, can suffer and die.
So what once would've been interpreted as a nightmare, comes to be reinterpreted as harmless, because you have lifted away from it the one thing that ever made it dangerous - the idea that it is REALLY HAPPENING. If the world is nothing BUT a dream, and is regarded correctly as NOT REAL AT ALL, then nothing in it can threaten you, hurt you, make you sick, or destroy you.
A happy dream is a dream thus in which your mind is free from the world because it does not GIVE it any reality, power or truth. It has power OVER the world because of this. You are now recognizing yourself as the dreamer of A DREAM, and not of a reality. And no nightmare can remain a nightmare when its heavy darkness is lifted away by the light of truth.
"There is nothing in the world which has the power to make you ill or sad, or weak or frail. But it is you who have the power to dominate all things you see by merely recognizing what you are."
"The happy dream about him takes the form of the appearance of his perfect health; his perfect freedom from all forms of lack; and safety from disaster of all kinds."
"Salvation is a paradox indeed! What could it be EXCEPT a happy dream? For you are asked but to forgive all things that no-one ever did; to overlook what is not there; and not to look upon the unreal as reality."
"That is why forgiveness of another is an illusion. Yet it is the only happy dream in all the world; the only one that does not lead to death." "In your relationship, the Holy Spirit has gently laid the real world; the world of happy dreams, from which awaking is so easy and so natural."