Queen Mab may not appear in the play as a character, but she is certainly prevalent in the play.
Mercutio states that lawyers will dream of lawyering, (paraphrase) butchers butchering, etc. "Dreamers often lie," he says to Romeo, who responds, "In bed as they dream things true." Mercutio is wrong, however, because Romeo's premonition of some occurence at the Capulet ball (which will cost him his life) turns out to be true.
Mercutio's humorous portrayal of Mab, and his deflection of a serious concern of Romeo into a comedic situation, is synchronous with his character. Mercutio often doesn't understand the full nature of a situation before he becomes involved, just like his death scene.
The person whom Mercutio identifies in Act I, scene iv, is in fact Queen Mab. Mercutio's Queen Mab speech is, however, far more than a symbol of Mercutio's silliness.
As Romeo laments about his disillusioned love for Roseline, Mercutio launches into the Queen Mab speech as one explanation for the why and how of human being's dreams and aspirations. The speech not only helps to explain Mercutio's character and Romeo's love predictament but also helps to reinforce the fact that Romeo and Juliet are "star-crossed lovers" and that their fate has been put into motion long before their own futile attempts to do otherwise. From this speech, we glean the idea that perhaps this entire plot, this entire play has been planted in Romeo/Shakespeare's mind by some supernatural being or faerie.
The character that Mercutio describes in fine detail and at great length is someone that he calls Mab, the Queen of the Fairies.
What is going on here is that Mercutio is making fun of Romeo. Romeo is totally lovesick. At this point in the play, he has not yet met Juliet and is instead lovesick over a woman named Rosalind. Romeo starts to tell Mercutio about a dream he had and Mercutio butts in and starts describing Mab from his own dream.
What this tells us about Mercutio is that he is a silly person. He is reallly into being goofy and making jokes and such. He also really loves to talk and to play around with words.