From Karl Jaspers General Psychopathology page 99:
"Suddenly things seem to mean something quite different. The patient sees people in uniform in the street; they are Spanish soldiers. There are other uniforms: they are Turkish soldiers. Soldiers of all kinds are being concentrated here.
"There is a world war. Then a man in a brown jacket is seen a few steps away. He is the dead Archduke who has resurrected.
"Two people in raincoats are Schiller and Goethe. There are scaffolding's up on some houses; she knows at once he is an old lover of hers; he looks quite different it is true; he has disguised himself with a wig and there are other changes.
"It is all a bit queer."
This is an account of delusional perceptions, it could equally be the account of a dream.
The mood behind this is perplexity.
"Patients feel uncanny and that there is something suspicious afoot. Everything gets a new meaning. The environment is somehow different (...) some change which envelops everything with a subtle, pervasive and strangely uncertain light."
In dream experience there is an alternation between puzzlement - that something is not quite right, absurd indeed; and a bland acceptance of whatever emerges.
Indeed some dreams are just the one, or the other. In some dreams there is no perplexity but only a series of weird events which flow into each other and are accepted without question. Other dreams are just like a slice of waking life, logical, maybe mundane.
Likewise with delusions. Some delusions are mundane, logical, in clear consciousness; others are utterly bizarre alternative worlds - in an other worldly state of altered and clouded consciousness, where the patient lives in imagination.
But the characteristic situation for psychotics is an in-between state of perplexed, semi-rational bizarreness.
Underpinning this is disordered thought, underpinning disordered thought is fluctuating consciousness - delirium which comes and goes.
Segments of dream alternate with segments of rationality which try to make sense of the dreams but are interrupted by further dream segments before progress can be made - the world is bizarre and it is puzzling.