This lilting little number follows a familiar pattern. In the first verse, the speaker hearkens back to childhood. In the second verse, he is teen, awakening to the idea of love. And then the third verse finds him discovering this love (the listener/subject of the song, of course, a.k.a. "you.")
Simon's take on this trope has the child as a dreamer-- "I would dream of castles and kings"-- and budding songwriter: "Every song I sung [sic]/ Told a tale of wonderful things."
He grew up believing that... well, see the title.
Once he gets the idea of falling in love, he is content to be passive about it and trust to fate: "I dreamed that someday I/ Would awake and find you, my love." If dreams can come true, they will have to do so on their own. To be fair, he found her passively, as he predicted: "You came into my life."
Then, he says that he had done with dreaming: "I knew that my dreams were through." At first ,we imagine that he means that he no longer had the need to dream of love, once he had it in actuality.
This is true, but there is another side to his no-longer-dreaming, namely, the realities of life and love in the real world: "...we faced sorrow and strife." A rude awakening, for this dreamer.
Further, he did find the wrong person first, and it is implied that she was unfaithful: "I could feel that this love was true." There is an emphasis on "this," implying not only that there were others, but that those relationships were... problematic.
"Dreams can come true," the speaker repeats again (for that line, twice, is the chorus), concluding, "And you are my dream come true." Awww!
The melody is, well, dreamy. The backing vocal, however, is unusual to the point of being distracting. Instead of the usual "ooh-wah-ooh" or "sha-la-lah," we get this: "Run-tsu-dee-run-do-run-tsee-run." And, on top of that, some "ch-ch" vocalizations.
Perhaps this is meant to further the idea of the lullaby feeling of the song. If so, it's no "too-rah-loo-rah-loo-rah."
There is nothing wrong with the idea of trying to create a new "wop-bop-a-loo-bop." But maybe not in a love song...?
Next Song: Shy