Why do dreams lose clarity quickly over time after we awaken? Right after you wake up from a dream, you seem to be able to remember most if not all of the details.  Then, over time, these details fade and often disappear.

Is this a form of regression?  Why is it harder to solidify memories of dreams?
Short answer: Because areas of the brain needed for remembering are turned off during dreaming.

Dream Amnesia:

The process of converting perception into a memory construct that can be stored is called encoding, and is essentially the same during both wakefulness and sleep: That is, the same factors can hamper or promote successful encoding when awake or dreaming.  During sleep, the brain undergoes cyclical changes in which activity in some parts of the brain increases (hyperactive), while other areas decrease in activity (hypoactive).  Some areas of the brain associated with memory encoding are hypoactive during dreaming, resulting in most dreams being forgotten.


Red = hyperactive; Blue = hypoactive; F = prefrontal cortex

The most prominent area implicated in memory encoding of episodic memories is the prefrontal cortex (PFC).  Activity in this region is correlated with memory in studies conducted in awake subjects, and is similarly correlated with dream amnesia: During dreaming, this area is typically hypoactive (turned off), and its level of activity is predictive of dream recall.  Activity in the PFC during sleep may be modulated by levels of acetylcholine, dopamine, and other neurotransmitters.

Vanishing Memory:

Nir &amp; Tononi (2010) review the issue:


  Unless the dreamer wakes up, most dreams are forever lost. Upon
  awakening, memory for the dream often vanishes rapidly unless written
  down or recorded, even for intense emotional dreams. It is not clear
  why this is the case since from a neuroimaging perspective, limbic
  circuits in the medial temporal lobe that are implicated in memory
  processes, are highly active during REM sleep. Perhaps the
  hypoactivity of prefrontal cortex, also implicated in mnemonic
  processes, plays an important role in dream amnesia.


Theoretically, waking up reactivates the areas of the brain that are turned off during sleep, allowing for memories to be encoded.  This process is unreliable, as memory encoding in both awake and sleeping subjects is modulated by attention - also a function of the PFC - so how much and how well dream content is remembered also depends on how much attention is given to it during waking.  Without attention, the memory trace fades quickly.  This interpretation is consistent with the reduced dream recall in awakenings from deep (slow-wave) sleep, that are characterized by disorientation and lower PFC activity, and with higher dream recall of lucid dreaming, characterized by awareness, control, and higher PFC activity.

Note: The above is certainly an over-simplification of a complex and poorly understood system, but it does suggest that any factor affecting the processes involved in memory encoding and attention (such as certain neurotransmitters, psychoactive drugs, lesions, mood disorders, training, experience, etc) may impact dream recall.  On the other hand, NMDA, a neurotransmitter involved in long-term memory consolidation (LTP) - a different activity that is increased (hyperactive) during dreaming - is less likely to be implicated in dream amnesia.