Long ago, before the first humans saw the light of prime suns, the fey were a single race. These creatures, myth to some, nightmare to others, were a chaotic race of fundemental powers; those of nature and fertility, life and death, enjoyment and sorrow.
The Outer Planes were much different from what they are today, unformed… hardly a Great Ring at all. Only a few eons before, the Blood War had spread from the lower planes, and deities still walked the prime, creating races in their own images...spawning a fresh breed of gods, who would one day take over. The fey lived in a realm called dream, sometimes known as faery, and were ruled by a queen whose powers stemmed from the beliefs of her subjects, and she was much like the deities of old in strength. But she was not a dictator. There were...noble houses. Most of the names are lost now yet at least one remains: the Seldarine, eldest and most powerful of houses.
For time unknown, the fey lived apart from the rest of the world and in peace. Then the borders between their realm and ours *thinned out* and mortals began to dream.
Oh! what a gloriously interesting time it was in the land of Dreams…with all the new explorers who brought with them wonders of countless other worlds. Their naivety made it easy to take advantage of them, for they could not defend themselves. Mortals, the fey discovered, were suspectible to glamer and could not descern it from reality.
During this time the fey learned how to enter the prime material. Usually, they did this through *thin spots*, where many mortals dreamed of them, making the border all but disappear. But there was another way. It was an easier, yet more harmful way. The fey could enter through the dreams of mortals. And the mortals slept uneasily.
Entire worlds were swept into dream-slavery, entire populations starved because they slept and the fey didn't care enough to wake them. A new kind of dream was spawned: the nightmare: ridden by the more powerful fey as if it were a horse, leaving burning tracks across the dreams of mortals. Unhealable wounds. "Enough." said Corellon.
"They are in pain. Can you not see it?"
Most of them couldn't. Some, the most powerful of the dream-riders, had known this for long and did not care. But the Seldarine did. The mortals had taught them a new way. The way of Empathy made them feel the pain of the mortals.
Thus began their long campaign to end the dream, free the mortals. They rebelled against the fey queen (who in her splendor had not even noticed that her people were even in contact with mortals, but that is another story). There was war. The Seldarine were mighty and numerous in those days, and they struck down the thinning borders of the dream, forever making it difficult to find. Yet they were exiled in the process, for the queen's other servant races were beyond count and her displeasure at the shattering of her borders was great. As the border was struck the mightiest of the fey, the dream-riders, were preparing a suprise strike on the Seldarine. They were all gathered in the place between the Dream and the dreams of mortals when the tie was severed and their bond with the faerie realm destroyed. Their rage was terrible to behold. The men tore their eyes out and fought each other to oblivion and the women devoured their own souls, shrivelling their youth and beauty, becoming dark and terrible.
The first elves (as the followers of the exiled Seldarine house were called) that dreamt after the war were first to feel their rage. The hags came upon them in the night, sowing the seeds of their race and rode them to death. This happened night after night, until none of the elves dared to sleep. Their dreams were fueling their enemies, the soulless monsters in the dark pits of the night.
Slowly, the elves taught themselves to rest without sleep, to remember the past without a dream. The reverie was even practiced by the Seldarine lords. And the elves said: "We are born anew, on this day." and forgot about the Dreaming. The nightmares subsided, and the night hags were starved.
Their hungers would eventually lead them to their new home, the lower plane known today as the Grey Waste, where they still leech life and beauty from the world.
This is why elves do not dream…but once. Once in their lives. Dying, their minds open to the Dreaming one last time, where protected by Sehenine, the one Ancient who can still enter the Dream at will, they leave their bodies. Or so the legend goes.
Oh it could easily be lies. It's just an alternate point of view.
On the planes, we often have a chicken and egg problem with belief and reality. If people believe a thing to be in a certain way, they've *always* been like that. History, as it is, is literally being rewritten constantly.