Explain Like I'm Five

You don't form longterm memories while asleep; you lose the last few minutes before you drop off, as well. Short-term memories are held, but they don't get stored.

And the same applies while you're dreaming - nothing's getting recorded. You can pull it out of short-term right after you wake up, but that fades right out.

When you do remember dreams, it's because you remember remembering them while you were awake. If it was vivid enough to go over hard enough, then the second-hand memory gets stored.

Dreams don't really make any sense. When you wake up, you're remembering the emotions and linking them with images, but as the feelings fade, unless you were actively making them into a narrative, the random stimulus soup doesn't have any staying power worth remembering. Trying to remember just corrupts your working memory and will make you change and add details that weren't there. Same reason eye witness testimony is very often wrong.

It's because your dreams are not allocated to long term memory but instead short term memory.

Unless you make an active effort to move said memories into to long term memory, they will be literally deleted as most passing thoughts will.

It should be noted that when you dream a lot of your brain is inactive. This includes a few logic centers and in fact the part of your brain responsible for maintaining long term memory

We forget much of it but its still in our head somewhere. Theres been so many times a dream reminds me about another dream and act as a sequel of sorts. Days to years back. How much storage do we really have up here?

Could be that dreams arent stored at all, that if dreams are just random neurons following random-ish paths then they occasionally they hit the same pathway again and replay stuff, maybe?

Most nights I don't even know that I dreamed. (Im guessing I did, but I have no memory of it)

Other times I get short clips. For example, I might remember I was at my old high school with Hulk Hogan, and at some point the room was full of roaches, but how any of that fits together is completely lost.

As with most brain questions, nobody knows exactly.

One theory for the purpose of it, is to prevent us from confusing things we dreamed about with things that actually happened.

Edit: Lol, this always gets downvoted, but it's the truth. We know nothing about the brain; almost all the studies that get reported on are basically this.

Your brain doesn't distinguish between "processing" and "storage." In order to remember something, you essentially have to get a lot of the same neurons that fired during the original event to fire again in the same pattern.

When you sleep, your brain is "copying" memories by replaying them while also firing the neurons that will associate those memories in long-term storage, along with associations that need reinforcing. Think of this as indexing and cross-joining the memories.

When your brain does this--replaying snips of memories to associate them--you perceive and experience them: that's dreams. When you wake up, the actual memories have been properly associated and attached, but the many "clips" weren't actually related. Your mind tries to relate things together into narratives, because that's generally how we best recall things. You remember how to navigate to a place by recalling a little story of how you get there. When you wake up, the brain starts trying to put those snips into a sensible order. You start to construct a narrative that links those clips together into a weird story of the dream you had.

Or you don't! If the brain can't find the links, or if you just have other things to think about as you wake up, then the faint echoes of the dream memories fade off and don't cohere into a narrative. That's all our continuity of thought and being really is: echoes.

This same effect is part of why false confessions are pretty easy to get. If you tell someone a good enough story about themselves, and especially if you can provide some evidence, then their mind will start making up appropriate details to fill in the narrative gaps. Your mind really wants there to be a cohesive story so it can link memories up properly.

This is a somewhat personal theory, not something I know science to confirm, but I imagine, we evolved to have dreams, because they help us play out situations that might come up similarly in the future.

So, maybe you won't ever actually be in underpants in school, but you might still get into an embarassing situation and then know how to laugh it off.

So, the learnings from those dreams, those have to be remember. But the 'simulated' situations in those dreams, they would be bad to remember, because they never actually happened. So, it's also advantageous for survival to not remember them, which is why we generally evolved to not do so.

For me it's gone before I open my eyes. I remember I dreamt vividly, but it's gone.

Sometimes awake I can't tell the difference between dreams and reality. I'll have a dream of something and later day week whenever I was like I've been there or done that, Then I'm not sure if it was a dream or real life.

Short term memory vs long term memory.

That's why some people keep dream journals by their bed, because if you do something with that information right away once awake, you'll probably commit it to long-term memory.