From: http://www.psychologytoday.com/htdocs/prod/PTOInfo/pto_term_nightmare.asp
A nightmare is a dream occurring during rapid eye movement (REM) sleep that brings out feelings of strong, inescapable fear, terror, distress, or extreme anxiety. This phenomenon typically occurs in the latter part of the night and usually awakens the sleeper who is able to recall the content of the dream. Most nightmares may be a normal reaction to stress and there are those clinicians who believe nightmares aid people work through traumatic events.
Reoccurrences of nightmares becomes a disorder when it starts to impair social, occupational and other important areas of functioning. Then it may be referred to as Nightmare Disorder (formerly Dream Anxiety Disorder) or may be called “repeated nightmares.” “Repeated nightmares” is defined more specifically as having a reoccurring theme in a series of nightmares. Nightmares begin in childhood usually before the age of 10 and are considered a normal part of childhood unless they significantly interfere with sleep, development or psychosocial development. They tend to be more common in girls than boys. Nightmares may continue into adulthood. Nightmares in adulthood are often associated with outside stressors or exist concurrently with another mental disorder. Nightmares might be associated with trauma and anxiety.
A closer look at dreaming might be useful in understanding nightmares.
We typically spend more than 2 hours each night dreaming. Scientists do not know much about how or why we dream. Sigmund Freud, who greatly influenced the field of psychology, believed dreaming was a "safety valve" for unconscious desires. Only after 1953, when researchers first described REM in sleeping infants, did scientists begin to carefully study sleep and dreaming. They soon realized that the strange, illogical experiences we call dreams almost always occur during REM sleep. While most mammals and birds show signs of REM sleep, reptiles and other cold-blooded animals do not.
REM sleep begins with signals from an area at the base of the brain called the pons. These signals travel to a brain region called the thalamus, which relays them to the cerebral cortex—the outer layer of the brain that is responsible for learning, thinking, and organizing information. The pons also sends signals that shut off neurons in the spinal cord, causing temporary paralysis of the limb muscles. If something interferes with this paralysis, people will begin to physically "act out" their dreams—a rare, dangerous problem called REM sleep behavior disorder. A person dreaming about a ball game, for example, may run headlong into furniture or blindly strike someone sleeping nearby while trying to catch a ball in the dream.
REM sleep stimulates the brain regions used in learning. This may be important for normal brain development during infancy, which would explain why infants spend much more time in REM sleep than adults. Like deep sleep, REM sleep is associated with increased production of proteins. One study found that REM sleep affects learning of certain mental skills. People taught a skill and then deprived of non-REM sleep could recall what they had learned after sleeping, while people deprived of REM sleep could not.
Some scientists believe dreams are the cortex’s attempt to find meaning in the random signals that it receives during REM sleep. The cortex is the part of the brain that interprets and organizes information from the environment during consciousness. It may be that, given random signals from the pons during REM sleep, the cortex tries to interpret these signals as well, creating a "story" out of fragmented brain activity.
Symptoms of nightmares: Recurrent bad dreams.
Nightmares tend to be more common among children and decrease in frequency toward adulthood. Nevertheless, about 50% of adults experience occasional nightmares, women more often than men, and do not require any treatment. Eating just prior to going to bed, which raises the body's metabolism and brain activity, may cause nightmares to occur more often. Approximately 1% of adults however will experience repeated nightmares and should seek help.