Feeling the way a dream feels, even though it is really happening. It describes a real scene or experience that has gone strange in the particular way dreams go strange: things are beautiful but slightly off, time moves oddly, ordinary rules seem loosened, and you feel a step removed from it all, as if watching. That's what separates it from 'strange' or 'unreal' — dreamlike carries a soft, floating, hazy quality, usually pleasant or at least beautiful, not frightening. For frightening you would say 'nightmarish'. It is a favourite word of film and art writing ('a dreamlike sequence', 'dreamlike imagery'), and it works for places too: fog on a mountain, a quiet street at four in the morning, the first hour after very good news.