Sleepy Hollow itself symbolizes a kind of dreamlike world. Irving (Knickerbocker) notes that towns such as these remain unchanged even though the country is vastly changing and moving into the future. "Sleepy" Hollow invokes notions of sleep and dreams. Irving uses the word "drowsy" repeatedly and this stresses the sleepy, dreamlike quality of the culture of the town. The people of this area are connected but away from the world. They are isolated enough that their interests in supernatural ideas and mythical figures still holds sway over their conscious lives. The characters, including Crane, fall under its (Sleepy Hollow's) spell. Crane is as gullible as anyone. He eats up the legends as quickly as he devours food. "His appetite for the marvelous, and his powers of digesting it, were equally extraordinary; and both had been increased by his residence in this spellbound region."
Ichabod Crane views Katrina as a dream bride to be won. Her father's estate is like a castle to him. He dreams of marrying her, having children, and living off of that inheritance. It is partly a materialistic and objectifying (of Katrina) dream, but it symbolizes an American dream of having the money to support a family and live comfortably. With Katrina symbolizing a type of princess in this way, Ichabod is a knight. But clearly, he is the awkward, bookish knight whereas Brom is the traditional knight of action and physical strength. Brom's horse is called Daredevil; this symbolizes Brom's bravery. Ichabod is taken with Katrina's beauty and the promise of a great inheritance. But he is also under the cultural spell of Sleepy Hollow, complete with nightmarish dreams as well as beautiful ones. Dreams are rampant in this story. Characters like Ichabod, who have great imaginations, conceive of the greatest and worst scenarios.
The church near the grave yard symbolizes a connection between the earthly and the spiritual world. The church is a conduit to spiritual matters and the grave yard symbolizes the dead. The Headless Horseman haunts this area more than most because of its other worldly significance.