Of course you're wondering about the naughty dream Cassio supposedly has one night. Before we discuss what's going on, let's recap, shall we?
In sleep I heard him say 'Sweet Desdemona,
Let us be wary, let us hide our loves;'
And then, sir, would he gripe and wring my hand,
Cry 'O sweet creature!' and then kiss me hard,
As if he pluck'd up kisses by the roots
That grew upon my lips: then laid his leg
Over my thigh, and sigh'd, and kiss'd; and then
Cried 'Cursed fate that gave thee to the Moor!'
O monstrous! Monstrous! (3.3.56)
When Othello asks for "living reason" (proof) that Desdemona's been "disloyal," Iago tells him about a sexy dream that Cassio supposedly had one night while he was lying in bed next to Iago (presumably, at an army camp). According to Iago, Cassio talked in his sleep while dreaming about a steamy encounter with Desdemona. Not only that, but Cassio also grabbed Iago, wrapped his leg over his thigh, and made out with him, all while dreaming about Desdemona, of course.
What's going on here? First, it's important to note that Iago is framing Cassio to make it look like he's sleeping with Desdemona. Second, Othello seems willing to accept this graphic story as "proof" that Desdemona's cheating. Third, Iago is describing a blatantly homoerotic moment he has allegedly shared with Cassio. The description of the dream is supposed to be about Desdemona and Cassio, but that becomes less important than the graphic description of what goes down between Cassio and Iago, which begs the following question: Is Othello upset/jealous that Cassio (allegedly) had dream about his wife, or that Cassio was lying in bed and groping Iago? Literary critics have argued both ways, so take your pick.