There are many ways of looking at the faeries and their function in A Midsummer Night's Dream. As a playwright, Shakespeare drew on many sourses for his plays. Faeries are an intregal part of Celtic folklore. A belief in these magical creatures was a part of his world growing up. For example "faerie circles" can still be found in the countryside around Stratford-Upon-Avon.
They also refect the natural world. The conflict between Oberon and Titania has caused the faerie world to devide themselves between the two powerful and magical creatures. This in turn has caused the world that mankind inhabits to be aversley affeted. Until their conflict is resolved, mankind will continue to be adversely affected. Titania explains it all in Act II, scene 1. They are nature's agents, so to speak.
In many modern productions, the roles of Hippolyta and Titania and Theseus and Oberon are doubled. In this way, man himself is viewed both in the daytime or "real" world and the nightime and the world of dreams. In other world, the duel nature of human beings is explored.
In the nighttime world, dreams can be revealing and help to solve a daytime problem. Dreams can be sweet, strange, confusing, and all muddled up, so to speak. Dreams can also turn into nightmares.
In Shakespeare's play, the faerie manipulates the dreams and once the conflict is solved between Oberon and Titania the daytime world has sweet dreams.