In Mr. Cat's dream, Bad Kaeloo says that she's his mother. Mr. Cat mentioned having an Oedipus complex in Episode 86, which is probably the reason why he dreams of the person he has a crush on as being his mother.
Mr. Cat's nightmare has a reference to The Shining in it. Given Mr. Cat's love of all things scary, he's probably watched the movie before.
Mr. Cat is absolutely horrified by the contents of his nightmare and reacts in what seems to be an almost uncharacteristic manner until you realize that he had every reason to be scared by that dream - he was intentionally placed in scary situations created by his own mind, which would have tailored the contents of the nightmare to be specifically scary to him.
