Since you don't intend to trick or confuse your players into questioning what is reality and what is dream, get them to cooperate with you. There is no way you can describe baron D'Eville's appearance to make your players forget they killed him last week. So let them know general rules of the dreamworld, and let them roleplay their reactions with those in mind.
Objects and people in dreams are divorced from their history and functionality. While they are usually immediately identified, no expectations are attached to them. They are symbols, closest match your subconsciousness found to archetypes it was really after. Which is why the dream makes sense while you're in it. To help your players do this separation you can try the following, at least to start with: for each major element of a dream sequence, write down its name on a piece of paper, and its history or functionality in dot-point form on another.
- Burned down your home village
- Loves to kick puppies
- Killed by you in his castle
As the baron makes his appearance, put the pieces of paper on the table together, let players take a look, then separate them. Instantly, the players know who they're dealing with, but also know not to attribute to him any of those facts or behaviours.
If you'd rather keep some important aspects of an object or a person attached to it, simply write it on the piece of paper with the name.
PC's mother (name)
- PC's mother
- loves PC very much
- Died in the village burned by baron D'Eville
Knowing what (not) to expect from the dream and its participants, players can now react appropriately to mother and baron sharing friendly tea.
Of course, dreams are also known to change their rules on you. People turn into one another. Objects transform. True nature shines through. As the dream progresses and takes a turn for the worse, with flames beginning to rise around the tea table and baron starting to laugh, reach out and straighten out the folded down piece of paper with baron's name on it. Hidden beneath was always "Burned down your home village", but only now is that fact re-introduced.