People often see unknown things, places, and people in their dreams.
How is it possible to have such perceptions in our dreams that go beyond our actual experiences and memories?
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The mind/brain imagines things in a very uncontrolled way when we're asleep, and it basically does this by using various stimuli (sights/sounds/etc.) we've experienced before and combining them in expected or unexpected ways. By "expected" I mean that we may recall a known/real person in our dreams from memory, and by "unexpected" I mean that we may randomly piece together an imaginary person from various memories. As far as I know, there is very little conclusive research about why we dream what we dream (which is often unrealistic) - however, there are a few theories. The most popular (experimentally tested!) one is that we dream to consolidate memories. Accordingly, our dreams are often about the day's events - but reimagined by the brain in often very weird ways. So, for example, if one plays Tetris for a few hours before sleeping, one might have dreams with block-like shapes and falling-like movement. In general, it is very hard to predict what a person will dream, and it seems to be a relatively random reactivation of various connections between stimuli we've experienced previously. Some research suggests that we recombine 'pieces' of memories in creative ways during sleep because it might help inductive thinking/insight. A tentative suggestion is that dreams somehow help the brain predict things it hasn't experienced yet.