The recursive-sounding "dream within a dream" terminology is, I think, misleading. The "inner" dream is just a perfectly ordinary dream. Then you dream *about waking up*. (That's the only bit with serious meta-ness to it.) Then you carry on with another perfectly ordinary dream. At this point you can in principle dream about waking up again, etc., etc., etc.

It's rather like tail-recursion optimization, only backwards.