Here's another try.

You woke up on a boat. This explains why you thought it was a dream. The image is sideways of what it would be from the perspective of someone standing upright. The sea was calm so it reflected the second, dimmer part. As to the recent (last couple hundred years) aspect, this phenomenon may occur at extreme latitudes. All the pictures I've come across were from places very north. It was mentioned in comments that there is a human made component, which I think is climate change. There is now more (calm) sea up north so it is plausible to wake up to a reflected rainbow.

"tiny animals may have experienced it over the course of eons and written poetry about it"

The earth's last warm period before some old ice age? This is still confusing. Were creatures smaller back then? Did they write poetry?

Sorry for answering twice but it's a completely separate thought.

Here's another try.

You woke up on a boat. This explains why you thought it was a dream. The image is sideways of what it would be from the perspective of someone standing upright. The sea was calm so it reflected the second, dimmer part. As to the recent (last couple hundred years) aspect, this phenomenon may occur at extreme latitudes. All the pictures I've come across were from places very north. It was mentioned in comments that there is a human made component, which I think is climate change. There is now more (calm) sea up north so it is plausible to wake up to a reflected rainbow.

"tiny animals may have experienced it over the course of eons and written poetry about it"

The earth's last warm period before some old ice age? This is still confusing. Were creatures smaller back then? Did they write poetry?

Sorry for answering twice but it's a completely separate thought.

Edit:

They don't line up because the actual reflection is happening past the horizon.