Oookay! So, as a reminder, I'm using the original Dreamtale, or what I know of it, as building blocks for my version of it. Not everything will match and I'm altering things.
Dream and Nightmare were created as the guardians of the tree of positivity and negativity. Dream cared for the golden apples of positivity and Nightmare the black apples of negativity.
Who were they created by? Where did the tree come from? No one knows. The tree just sprouted one day and the twin came soon after. Best guess is ambient magic from nature, then the tree needed someone to guard and help care for it.
Either way, they were created and they were together. Brothers.
A village of Monsters and Humans grew soon, just down the hill where the tree resides. It flourished, and the twins grew curious. So they ventured to see it.
The village welcomed them in happily! They feasted, danced, made merry with them. Everything went well, for a while.
Dream was always the more outgoing of the twins, he had much more fun running and playing with the younger of the village. Creating games and generally making a bit of mischief. Along with helping care for the animals and farms.
Nightmare on the other hand, he was more reserved and soft-spoken. He could be coerced into a game or two, but he much preferred the quieter activities. A school teacher took him under his wing for a bit. Taught him to read and write, gave him a love of reading. He also liked sewing with the village ladies.
Things eventually.... started to go wrong though. The village started to suffer. Natural things really, a drought. A plague. It'd always bounce back, of course. But it was starting to weigh heavily on the people.
They knew about the tree. They began to blame it all on the negative side of it. That none of these bad things would happen if there wasn't that negativity, if the bad didn't exist. They started plotting, thinking.
Nightmare heard the whispers, though the villagers tried to keep it from the two. He tried to tell Dream, but.... he didn't want to ruin things for him. They were targeting his side of the tree after all, it was his problem.
Nightmare started pulling away from the village, stayed by the tree more instead of visiting the village. Pulled away from friends, and even eventually started distancing himself from Dream. Who was worried, but Nightmare wouldn't say. And so, the village pulled away from him too.
It was still a bit of a surprise when the villagers tried to attack. They were friends after all, Nightmare hadn't.... really thought they would go through with the threat. But scared and paranoid mortals, after all. He was betrayed, he was scared.
He couldn't let them destroy the tree, it wouldn't let him. The mortals would learn that they aren't just guardians, they were Gods.
Nightmare ate his apples, as he was told. It.. changed him. He punished the ones who tried to destroy the tree. Showed the others what would happen if they tried something similar.
Dream was... taken aback. He was horrified, but he knew.. this didn't come out of nowhere. Nightmare wouldn't do this without a reason. But.. he was also going too far, something was wrong.
He ate his apples, as he was told. He fought his brother, brought his rampage to a stop. He was angry too, for the destruction and secrecy. But there was still something wrong with Nightmare, he calmed down but he wasn't right.
The mortals began to worship the twins after that. Dream found this kind of... odd. But both went with it. Nightmare was a bit more... cruel than he used to be, more reserved. Dream himself pulled back a bit too. More skeptical and observant.
The mortals assigned the two as gods of more than they really had control over, but the two didn't really care. It was their stories, let the mortals have their fun.
They created a castle for the two to reside in. With a beautiful garden, which in the center resided the now dead tree.
The twins fought a lot more now, which gave rise to a lot of the universe's myths. Nightmare had to feed of negativity to keep his strength up, but Dream hated the purposeful misery. Nightmare had to find more sources, so he began something he didn't know he could do. He traveled to other universes.
It's there he found a potent source of misery..... and his future Queen, in this particular story anyway.