The poem contrasts the nighttime, imaginative world of a child with his daytime, prosaic world.
In the first stanza, the child, on going to bed, imagines castles, dragons, magic fruits, and gallant horsemen. In the second stanza, the child wakes up. The objects he had imagined as enchanted and part of his medieval fairyland are now ordinary, everyday objects. For instance, the castle has become a chair, and the horsemen have become a pair of boots. The "blue" streams he imagined are now a bath and watering can. By light of day, he can no longer return to his imagined world.
This is a very simple poem, written in rhyming couplets from the point-of-view of a child. Some complexity is introduced, however, in the two repeated lines, "at seven, when I go to bed," and "at seven, when I wake again." Does the "seven" refer to the child's age, when he goes to bed and rises, or both? This is up to the reader to decide, but it is likely Stevenson meant both.