Okay
This can work for anyone else who is confused
The party split into roughly two groups. One investigated the forest, the other stayed in the room. The room group was visited by a cat, who warns them of a terrible danger, and claims to know Cloud and Aven. The other group found a corpse of the man who had been talking about night terrors, with horrible straight lines carved into him. They managed to get back to the room, but Cloud thought of the Hounds, and now they hunt the party.
The cat removed corners from the room, cut Eri's arm and used the blood to create a sigil, which transported them to the Dreamlands.
People have just been wandering around the Dream town, shopping and exploring. Making time, in the cat's words.

More or less.