A dream pouch is a small fabric bag that you use to hold a selection of herbs, essential oils, and the like. They are one-part aromatherapy and one part magic.
A thinner fabric that lets smells through easily is best, but any light fabric will do. For something like protecting against bad dreams and/or promoting good ones, I would recommend using a pinch or two of lavender, cedar, and perhaps a touch of clove as the scents instill feelings of relaxation and promote a relief of stress. Mint and vanilla bean are also soothing scents if you wanted to use that along with (or instead of) the lavender.
On the protection side, a small packet of salt usually does well. One of the paper packets from a fast food restaurant is handy as it makes sure the salt won't spill around. Otherwise put some coarse salt into a smaller baggie of a fabric with a tighter thread count and put it in with the herbs that way. You can mix the salt with a bit of crushed up sage or add a few drops of essential oils to it as well. Other options would be to put in a chip or small stone of a black rock like obsidian, jet, or onyx. Snowflake obsidian is a nice stone to use. A piece of Kyanite would also add a boost to the restfulness of your sleep as the stone re-balances energy, aligns chakras, and stimulates the raising of personal vibration.
There are a few other options out there, just google up stones and herbs and aromas that promote rest, protection, grounding, and positive energy. Whatever bits you select, throw them together into a bag that is large enough to hold the components and still be loose enough to rest flat, and tie or sew the bag shut. You can keep it under your pillow, or with the pillow in its case.
I can't see why not, Though then you might lose out on the aromatherapy aspect some. Smell is an important sense for the human mind. Still you could focus more on the protective symbols and herbs, add some cinnamon and/or sweetgrass, And tie a bird of prey feather to the bag with some red, white, or gold thread. It would put more emphasis on the protection side of things than on release of tension/stress but it would still do the trick methinks.