"As dream characters are one with the dreamer,
So is all creation One with the Creator."
What I love about this teaching is that it really provides a clear example to appreciate our relationship with our Creator. Think about it for a moment. A character that you meet in your dream is made up of you. Even if s/he feels to you like a separate identity, s/he's not at all separate from you. S/he's one with you.
Your being runs right through your dream character. S/he's through and through you - inside and outside. The only reason why for the moment s/he feels separate is because you're asleep. The moment you awaken, the illusion snaps and character's whole "identity" merges into his/her source in your identity, exposing a oneness with your own identity - a state s/he never really left.
This is how our identities (and indeed the identities of all created beings) are in relation to our Creator. He's the only real existing being. There is nothing outside of Him. So how do we exist?
We're like dream characters, temporarily under the illusion that we're separate idenitities, when in fact there is only Him. The only difference is that we're the only ones dreaming, He's not! He's fully awake. From His perspective all the dream characters never emerge as separate entities. There's just Him and all is merged with Him in Oneness. Only the characters themselves are caught up in the great cosmic dreamscape.
Varying levels of reality, like paradise and earth are just the characters' own varied experiences of lighter or deeper dream states. The earth plane, is a state of mind where the dream feels very heavy. Characters caught in this state are suffused with the sensation that they're really separate beings. It's rare to have any sense of the existence of a Source Being, let alone of being connected to Him as an Ultimate Identity from Whom all other identities emenate.
Paradise is an experience where beings are beginning to sense the presence of their Source Identity and feel intense pleasure from this amazing connection. While the sensation of being a separate identity continues, it is softer and more faded.
This teaching has practical implications in our day to day lives. We are all characters sharing the same cosmic dream. This makes us one identity with each other. As our right hands treat our own left hands, so we should treat each other. There's really only One Identity coursing through all of us.