Someone reading one of my manuscripts once crossed out a dream sequence, and wrote, “You can always cut dreams.”
This is sometimes good advice, e.g. if you're aiming for a hardboiled style. Under other circumstances, I think dreams can add a lot to a novel.
One advantage of dreams for a fiction writer is that they tend to be emotionally charged.
Dreams can also, paradoxically, enhance a sense of overall realism -- real people do, after all, dream. Certain types of people, at certain stages in their life, are likely to pay attention to their dreams -- a dream can influence your emotional reactions to what happens after you wake up. Hence dreams can be useful for characterization.
Most people know the first line of Anna Karenina, but ask someone who's only read the book once what happens on the first few pages, and they probably won't remember Oblonsky's dream, about the decanters which are also women. But this dream very economically conveys Oblonsky's aimiably hedonistic and chauvinistic world view. Plus the description of Oblonsky's dream, so early on, signals what an omniscient narrator we have to deal with, and displays the depth of Tolstoy's reach into the psyches of his characters.
What scenes do you remember where fictional characters dream?
Roberto Bolaño in 2666 records a lot of dreams, especially in the first part, “The Part About the Critics.” These dreams help foster the book's mysterious atmosphere. Amalfitano's dream at the end of “The Part About Amalfitano” is one of my favorite in the book – the dream where the last Communist philosopher turns out to be Boris Yeltsin, who tells Amalfitano that the equation of life is "supply + demand + magic." I like this because it's completely “off” in the way real dreams are completely “off” -- more than any other dream in the book, I suspect it of being a dream Bolaño really had himself.