Nightmares

How do you explain to a 3 year old that what seems very real and very scary is just a dream? Naomi has bad dreams frequently. She's been doing a little more sleep walking lately as well. The problem is, even the next day she won't believe us that what happened was a dream. For example, there was apparently a very large, scary dog on her bed last night. Even today she says he was real. I try to empathize with her and her fear but I'd really like her to begin understanding the difference between reality and dream world. I'd also like her to believe me in the middle of the night when I check her room and tell her there is no dog on her bed. Unfortunately she won't go look for herself. Once she ran out screaming she absolutely refused to go back in there with me. The poor child had terror in her eyes when I tried to get her back into her room. I love the girls, but really don't like sleeping with the wiggly, snugly octopuses.