What makes your character the person he or she has become? Dreams and flashbacks are commonplace in dramatic movies and provide a convenient way for the storyteller to reveal something in a character's past.
Giving your audience a glimpse into your character's past tells them something about who he is today, and why. A gangster may have lived a dreary life as a street urchin, abandoned by the adults he trusted, left to stealing food to survive. Or a child who once dreamed of being a cowboy finds his modern technology-filled world isn't what he planned, but he somehow finally gets the chance to shuck the briefcase and rat race to ride the great plains.
By creating the dream sequence you can tell a lot without having to make a longer, drawn-out story and you can flesh-out your subject's character from a two to a three-dimensional persona. You are giving your story what they call in Hollywood, "discovery". You fill in some of the blanks in the storyline.
Dream sequences can be achieved with just a little bit of work, or they can be very intense effect sequences requiring a whole team of CGI artists. Luckily for us, we can explore some common special effect techniques and learn how to make this effect work well.
First of all, you're going to lead into this sequence with something happening in the present. So you have a choice to go one of two routes to the dream sequence. Few films take a very dry approach to the transition between present and a dream by doing a simple cut-only transition. This technique has a greater chance of confusing the audience as it may not be entirely obvious that the following scene takes place in the past. Filmmakers will often take advantage of this confusion when the experience of the film is supposed to be mysterious or misleading. But at some point, the viewer will start to piece it together. Another option, which is more common, is to use a cross dissolve transition to imply the passage of time. One scene dissolves into the other scene and the viewer is aware that there's a time change, although they won't know exactly whether or not we're moving back in time or forward.
You don't always have to use a cross dissolve to imply a passage of time. Editors have gotten more creative with their techniques and use sound effects to relay the same idea to the audience. The TV Show Lost is a terrific example of the "whoosh" sound effect. This is used throughout the series to move forward and backward in time (and the whoosh is used for parallel storylines, too). A quick Google search for "woosh sound effect" will turn up a variety of options, including some royalty-free whooshes. What can be better than that?
When using a whoosh sound effect, it can work really well if you match it with a visual cue as well. For example, you have a character in present time walking through a restaurant. A waiter crosses before the camera, blocking the view momentarily. As the woosh sound effect starts, the waiter's movement across the camera match nicely. Now the waiter clears the camera and we're in the past, no longer at the restaurant but at a school yard with our character.