While the exact reason is not fully known, there are some theories. One of them involves the role of the neurochemicals.
Dreaming occurs during the sleep stage known as Rapid Eye Movement (REM). REM is sometimes known as desynchronized sleep, because during this stage the body is paralysed but the brain is active.
Our forgetfulness is generally attributed to neurochemical conditions in the brain that occur during REM sleep involving two hormones – acetylcholine and noradrenaline. Acetylcholine consolidates information, while noradrenaline helps in formation and retrieval of memory. When we fall asleep, acetylcholine and noradrenaline drop dramatically. When we enter the REM stage of sleep, the acetylcholine level increases, but noradrenaline stays low. The low noradrenaline reduces our ability to recall memory during this time. Scientists have yet to work out this puzzle, but they suggest that this particular combination of neurotransmitters might be the reason we forget our dreams.
Also, in general, our brain does not care to store information that it considers nonessential. In fact, many of our thoughts, not just those we have while dreaming, are lost. (Can you recall what you were thinking while brushing your teeth this morning?) However, we tend to recall things that have emotional significance to us. That’s why we are able to recall certain dreams, sometimes more vividly – the ones that are bizarre, scary or beautiful.
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