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This is what you will end up with:

1. Open an image you would like to apply the dream effect to. Duplicate the layer (Layers> Duplicate. For an example I will use this picture or Orlando.

2. Apply the Gaussian Blur (Effects> Blur> Gaussian Blur)to the image. Set the Radius to any number you wish, I will use 10.
3. If your layer window is not open, open it now. You should see two boxes. On the right one make the layer opacity to 60-65, or anything you wish.

4. You're done, look at dreamy Orlando!