But are dreams created in the same area of the brain that analyses signals from the eye?
Your visual cortex is an internal stimulation during REM sleep. It's extremely active.
http://serendip.brynmawr.edu/bb/neuro/neuro99/web2/Sancar.html
"Currently, it is surmised that the activity of noradrenergic and serotonergic neurons of the LC and Raphe nucleus are suppressed upon entrance into REM states
(2,13). Their suppression leads to the cessation of both aminergic modulation and inhibition in the brain stem oculomotor networks (allowing for eye movement), geniculate bodies (in the thalamus), and the visual cortex
(2). Initially, the disinhibition of these structures located in the brain stem causes peribrachial cholinergic neurons of the pons (also in the brain stem) to become hyperexcitable, and hence fire in synchronous bursts. These neuronal bursts of the pons Cholinergic neurons propagate through (and phasically activate) the geniculate bodies in the thalamus, and the visual cortex. The propagation through these three bodies can be experimentally measured and are referred to as PGO (pontogeniculoocciptal) waves.
(2,13)
These waves constitute the internal stimulus source for the visual system in REM sleep, as well as simultaneously providing information about the direction of eye movements. The cholinergic neurons also excite neurons in the medial pontine reticular formation (mPRF), that in turn activate neurons of the forebrain
(13). It is the activation of the forebrain that is responsible for the cortical activity that accompanies REM sleep. Presumably, this cortical activation also constitutes the ability to form a relatively coherent dream plot from the inputs regarding visual and directional information
(2,13). Furthermore, the general shift from aminergic to cholinergic systems has been reported to increase the noise level of cortical neurotransmission, as well as the ease of attentional shifts in perceptual cueing tasks. Subsequently, this may account for the bizarre features of dreaming
(2) since there would be many more random inputs to make 'sense' of. Interestingly, activation of the geniculate bodies of the thalamus, as well as their interaction with the cerebral cortex, may also play an important role in the visual components as well as auditory components of dream plot."
