Melatonin's known to be super idiosyncratic. It works for me. Plus it's amazing for jet-lag (this has a lot of empirical support). Basically, nobody knows anything about harmful effects one way or the other. There's been no long-run research, so it's risky. I had the most bizarre experience once when I took 10mg and looked at some supposed ghost photos. I was absolutely horrified... for about five hours! And I don't believe in ghosts.
dreams happen to everyone, and can range from normal seeming to trippy ass for any given day. dreams are natural. the fact that its a -hormone- means that it changes the preference of action in cells. with melatonin, it obviously raises your brains receptiveness and 'willingness' to dream. but it doesnt do things that dont happen naturally