The Pools of Flame and Tears
Elves trance instead of sleep. While trancing, elves enter a meditative state and are partially aware of their surroundings. Unlike sleep, this awareness extends beyond the senses of touch and smell and hearing, and includes the sense of sight. An elf’s eyes are half-open during the trance.
Other than this difference, trance is very similar to sleep – the brain experiences trance-induced hallucinations which are for all intents and purposes, just like dreams. Dreaming in general can be affected by a number of things going on in the brain, including recent events, magical effects, random synapse firings, and sensory input. For elves, sensory input can include all five senses (rarely taste…) and provide for rather vivid dreams.
Some people believe dreams can see the future, or the present, or the past, in ways beyond normal perception, but there is no strong evidence for this claim. Elves need only trance for 3-4 hours instead of 6-8 hours of sleep for other creatures, and are easier to rouse.