the first nightmare would be at the ruins, you need to frequently rest at the shrine, i'm not quite sure if sleeping with Rhot is related though...
the other nightmare would be at your home, and actually it is not a nightmare as Korg would almost slaughter you
i guess the sequence is, resting would make Rhot approach you, thus sleeping with you, then there shall be a nightmare. then a game-week later you sleep back home to wake up with Korg holding your neck, cracking it, destroying your throat, unable to speak. blood burst out of your eye balls, unable to scream.
hahaahah jk, sorry, i should write my own terror game