From what I've researched and experimented with sleep, I have come up with three distinct levels of dreaming. There is also a fourth technically, however, the fourth is pitch black ... no readings have been recorded from this level.
Level One - The dreams that occur during daydreaming or light to moderate sleep. These can be controlled by what's on the dreamer's mind. The dreamer has complete control with the setting and interactions. Nightmares are not likely in this shallow layer, especially when the dreamer's a type that hides their problems.
Level Two - Dreams that occur during moderate to deep sleeping. The setting is difficult to control here but the dreamer has control of events and interactions. This place can get pretty weird and mysterious. Sometimes the settings get really carried away. Examples of this are floating platforms and misplaced objects. Nightmares can occur here as well, making this place less desirable. Nightmares can be avoided with a trained mind or enough focus. Dreamer can also reject dreams at this level, but it takes longer to wake up due to being deeper.
Level Three - Dreams that occur during deep sleeps. All factors are controlled by the subconscious. Since the subconscious acts independently from the rest of the mind it is usually a pretty creepy place. Most of the time it's poorly lit, random elements are around and usually move in ways that are not normally explained. The temperature is somewhat cool to visitors, but the dreamer does not feel the temperature. The dreamer cannot leave this level until a certain amount of time has elapsed. Nightmares are also likely to occur here, harvesting the poor control of elements in the mind. This level is usually a feared level due to how deep down it is.
Level Four - Dreaming cannot occur here as it is too deep. This level occurs in very deep or in knocked out states. This level is also entered when death occurs in the mind. Usually the person remains trapped if they're in this level, unless certain circumstances are met.
Level Five - A level that indicates a passing of a person into another world. Though this is a theory at the time, it is said that if you pass out in level four, you tear through the bottom layer of dreams and your mind passes onto another entity altogether.