It is said that the inner heat yoga [sexual transmutation] is the foundation stone of all Six Yogas [of which Dream Yoga is one]. Thus it is also the foundation stone of Dream Yoga. Through the inner heat yoga one gains control over the vital energies of the body; one then applies this control when going to sleep in order to conduct the dream yoga practice. Dream yoga can also be engaged through the force of conscious resolution, yet this is not the primary method. The primary method is energy control born from the inner heat yoga. Conscious resolution is only intended as a supplement.
The first step in dream yoga is to learn to retain conscious presence during dreams. Later one meditates on the suchness [emptiness] of dreams. However, merely recognizing that the horses, elephants and so forth that are seen in dreams are illusions will not give rise to the wisdom of emptiness [prajna / right view], in the same way that realizing something to be an illusion in the waking state, such as one's reflection in a mirror, does not give rise to realization of emptiness.
Quoted from Notes on A Book of Three Inspirations by Jey Sherab Gyatso [1803-1875]. Published by Snow Lion (1997) in The Practice of the Six Yogas of Naropa, translated by Glenn H. Mullin.
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