Great idea for a game - I love the concept!
Minor QOL suggestion: It would be great if I could switch the selected dream by clicking the associated label. This would make selection easier.
In general, a kind of skill system where you have to apply a nightmare X times to increase your power so that you can project more and more horrifying dreams would improve immersion instead of general fear points.
A win condition would be great but maybe its just about making a bit less linear. For that it could be also interesting to chain dreams. If a guy is afraid of heights and being chased it would be interesting to be able to apply first the chase and then falling of a cliff. This way you could even introduce combos that give more experience. This would maybe make it more interesting to "chase" the perfect combo of dreams. Otherwise especially in the beginning I just skip a lot of nights because I have not yet the right dream. With multiple fears it would be possible to fulfil at least a part of the persons fears and not just skip him.