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I've always thought that my dreams were bits and pieces of real people, glimpses into other worlds and lives, somewhere... but real as can be... Even when I see myself in dreams I think of it as seeing myself in an altered reality... I've always thought I had a pretty good imagination..
I liked your comment about the person having adventures outside of this realm, and to be glad of it...I was thinking the same thing. Sometimes I wish my dreams WERE my reality. lol
It sounds to me like your father is having adventures beyond the four walls of the facility he lives in. Be glad he is. They enrich him.
This was one of the earlier symptoms of my Dad's short-term memory decline. As I understand it, dreams are not processed/stored in short-term memory ... so it gradually became difficult for my father to distinguish between some dreams and "real" (longer-term) memories. He doesn't tend to confuse the really outlandish dreams with reality, but things that feel as if they MIGHT have been or COULD have been real are harder for him.
Although my Dad does have a diagnosed dementia (FTD), and his cognitive decline is noticeable now during his waking hours, this dream/memory confusion was happening even when his memory problems were not nearly so intrusive during the day. The neuropsychologist confirmed that dream/memory confusion is not atypical in people suffering from short-term memory impairment.
Of course, whether your father is experiencing short-term memory impairment -- and, if so, whether that impairment is due to some kind of incipient dementia or to some other physiological condition or imbalance -- is a question for the professionals. :-)
..if he has them they are his.
I would agree that it's a medication or diabetic issue rather than dementia.
I just Googled diabetic hallucinations and one of the links was to a diabetes forums board. Lots of folks on there said they had hallucinations or very vivid dreams at night. I'd talk to your dad's doctor about it. Sounds like it could be blood sugar/insulin levels.