We know the passage of time partly from our faculty called memory, which can recall events in the sequence that they occurred. Time in our memory is a byproduct of memory acting like an event-driven program. The elapsed time can expand or shrink in the memory banks but we know, or think we know, what event happened before or after another event.
In dreams, however, the faculty of knowing the order of events is lost. Events pile on each other in arbitrary ways. This contributes to our feeling lost and in limbo in the dream. Even when a dream sequence occurs, often a dream that seems hours long was actually dreamed in minutes.
Perhaps this is why some modern writers like James Joyce have a strange resonance with us as readers – the writing resembles our dreams.