Coleridge makes this one easy for us since the subtitle of the poem is "a Vision in a Dream." This poem is meant to make us feel like we are in an alternate reality. We recognize all the objects he describes, but the images he creates move in ways we don't expect. People appear and disappear strangely, just like in a dream or a hallucination. Think of it as a scary Alice in Wonderland.
All the different aspects of his poem (the rhyme scheme, the images, the plot, etc.) are dreamlike in one way or another. The entire poem is designed to create the atmosphere of a dream.