Origins
The word 'dream' has one of the most unusual histories in the English language: its modern meaning was not inherited from Old English but imported from Old Norse, overlaid onto an Old English word that originally meant something entirely different. The result is a linguistic chimera — an English form carrying a Scandinavian sense.
Old English 'drēam' meant 'joy,' 'merriment,' 'music,' and 'the sound of musical instruments.' It had nothing to do with sleep or nocturnal visions. The Old English word for a dream in the modern sense was 'swefn' (from Proto-Germanic *swefnaz, related to Latin 'somnus' and Greek 'húpnos,' both meaning 'sleep' — the same root that gave us 'insomnia,' 'somnambulism,' and 'hypnosis'). 'Swefn' is now entirely extinct in English.
Old Norse 'draumr,' by contrast, meant 'dream' in the modern sense — a vision experienced during sleep. It descended from the same Proto-Germanic root *draugmaz (deception, illusion, phantom), but had retained and developed the 'illusion/vision' sense that Old English had replaced with 'joy/music.' When Norse-speaking Vikings settled extensively in England from the ninth century onward, their word 'draumr' (sleep-vision) influenced the meaning of the similar-sounding English word 'drēam' (joy). By the thirteenth century, the Old Norse meaning had entirely displaced the Old English meaning: 'dream' now meant 'a vision during sleep,' and the original sense of 'joy' was forgotten.
Development
This semantic takeover is remarkable because it happened without the word's form changing. Unlike most Norse borrowings (which replaced English words entirely — 'they,' 'them,' 'their,' 'sky,' 'egg,' 'take'), 'dream' kept its English appearance while swapping out its meaning. Linguists call this process 'semantic borrowing' — the borrowing of meaning rather than form.
The Proto-Germanic root *draugmaz (illusion, phantom, deception) connects to a web of words about unreality and trickery. German 'Traum' (dream) and 'Trug' (deception, illusion) may be related, as is the Germanic concept of 'draugr' — the undead of Norse mythology, revenants who walk between the world of the living and the dead, phantom-beings. If *draugmaz originally meant 'phantom' or 'deceptive vision,' then a dream was, to the Proto-Germanic mind, a phantom that visits during sleep — an illusion that mimics reality.
The secondary modern sense of 'dream' as 'aspiration' or 'cherished ambition' (as in 'the American dream' or Martin Luther King Jr.'s 'I have a dream') developed in the early modern period. This metaphorical extension — from 'sleep vision' to 'waking aspiration' — treats our deepest desires as visions that visit us from beyond the waking world, carrying the same mix of longing and unreality that characterizes nocturnal dreams.