If you look at the map of the countries surrounding Oz from the endpapers of Tik-Tok of Oz, you’ll notice that the area just to the east (which is left on this map for some reason) of the Growleywogs’ territory is labeled “Kingdom of Dreams.” So what do we know about this place? Well, nothing, really. There were several places on the maps that L. Frank Baum hadn’t used yet but would in the future, but this strange kingdom is the exception. As has been pointed out in The Annotated Wizard of Oz among other places, there’s a possible reference in Ozma, as Chapter 13 ends with the sentence, “But she [Dorothy] lay down upon her couch, nevertheless, and in spite of all her worries was soon in the land of dreams.” It’s a bit of a stretch, though, as Dorothy makes no change in physical location. It’s certainly possible that Baum thought of the Kingdom of Dreams as the place where dreams are manufactured, and/or where people’s spirits go when they dream. That’s what readers generally seem to think, but I’ve seen some other interpretations. Someone pointed out that most of the nearby lands are inhabited by nasty creatures (Whimsies, Growleywogs, and Phanfasms), and proposed that the Kingdom of Dreams could be the home of similar nightmarish beings. As mentioned here, it’s also not at all unlikely that Ruth Plumly Thompson intended the kingdom as the home of the Sandman.
A few apocryphal stories involve the mysterious kingdom in some way or other. One of the most prominent uses of the land is in March Laumer’s Charmed Gardens, in which a living comet that hits the Kingdom of Dreams brings to life the dreams of an Oz fan. Sherwood Smith’s Trouble simply mentions Dori seeing “a low mist” covering the “strange and mysterious” kingdom as she flies over it on a magic carpet. An Oziana story, Everett Avila’s “The Tail of the Pink Goat,” mentions that the territory used to be the center of the Blue Empire and is now ruled by a minor king named Archibald Dreams.
Although it doesn’t involve the kingdom, there’s an interesting case of dreams becoming tangible in John R. Neill’s Runaway. In this book, Professor Wogglebug dreams up a floating castle to stay in for his vacation, but his student Alexample accidentally loosens it from its mooring. Scraps, Popla, and the Twinkler later come across it and stay there, but it begins to dissolve after a week.