When you fall asleep, your brain paralyzes your body to prevent you from physically acting out your dreams and injuring yourself somehow.
This function isn’t perfect though. Sometimes it fails to kick in, which is what sleepwalking is, and other times it kicks in early and paralyzes you before you’re actually fully asleep.
So, still being kind of awake, the parts of your brain that go dormant during sleep are still active enough to realize that you’re paralyzed. Often times though, you’re ‘asleep’ enough to start dreaming.
So what you can get is dreaming while awake but paralyzed. Most people freak out when they realize they’re paralyzed, and that can fuel nightmares, so you get people’s dreams telling them that there’s some kind of monster holding them down to explain their inability to move. Hence the whole “Sleep Paralysis Demon” thing you hear people talk about.
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