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The disturbing dreams foreshadow some "bad" things to happen in the future. It seem that we are getting set up for some of the tragedies that will happen in Kino's future.
I believe this would have been one of those half dreams where you're sleeping but you're not. Kino's apprehensions interfere with his ability to sleep, he is sleeping with both ears open in fear that someone will attempt to steal the pearl (with good reason), and he feels the danger that surrounds him.