"To sleep on it" means to put off making a decision until the morning, or similar. Perhaps you are thinking about buying a car. You test drive the car. You really like it but it is about £500 more than you wanted to pay. You might say to the owner "Can I sleep on it and give you a ring in the morning to let you know my decision?"
The "it" refers to the subject that you want some more time to think about.
:up:So 'dream...on' is not being used as a collocation. The author is saying 'sleep on it
[but don't just put it off until tomorrow; the important thing about sleeping on something is that it gives you time to process it by the means that we call 'dreaming''. S/he tried to work all this in by simply adding 'dream', but ended up with a bad collocation. 'On'
can mean 'about', so it probably didn't look too bad when s/he was writing it. ;-)
b
PS The 'test drive' thing ia a new topic. It needs a new thread. 5jj would usually say this, but hoped he could get away with a simple 'No'! If you want more than that, start a new thread.