When was the last time you allowed yourself to dream without pragmatic parameters (e.g. dreaming about what you genuinely desire instead of what you, in your current situation, think you can obtain)?
For me, it's been a very long time. If there was a grade given out for dreaming (and thankfully there is not), I would have consistently received at least a D (if not lower) from age 7 through the present day. Oh, sure, I can daydream with the best of them and can imagine for a moment that life was different...but the practical side always reminds me why those daydreams could not come true. This logical side also makes it difficult to watch fairy tales and other movies like that because I can't suspend reality long enough to enjoy them.
(Same thing goes for the song "Before he cheats" by Carrie Underwood: Why would you carve your name into his leather seats? I get the concept, but, really? You want to leave clear evidence that YOU were the perpetrator? That sounds like jail time to me.)
The concept of having dreams bigger than fears relates to suspending "reality"--to believe, especially when all of the empiracal evidence concludes that a situation is "impossible," that God can and WILL provide the way for your dreams to be fulfilled. Some might even call this concept (believing in things that you cannot see) faith. Our faith cannot be based soley in an outcome or a desired result, not matter how much we desire it; our faith must be centered in Jesus Christ and in His ability and willingness to help us achieve our dreams. (See the Bible Dictionary entry "faith" for more enlightenment about this concept.) Our dreams become powerfully able to diminish our fears when we allow Jesus' perfect love to cast out any and all fear in our hearts.
Further, Christ's love will enable us to dream bigger and better dreams. We will not worry about the practical "how" of the dream (the part that usually classifies a dream as "impossible") because we will know that He will provide the way. Feeling Christ's love will enable us to see our divine potential, causing us to desire what He wants for us to become. We rise to the expectations, however low or high we establish for ourselves; Jesus' love raises our expectations for ourselves (what we can achieve) and for others (how He can advocate with others on our behalf to secure their help in obtaining our desire--e.g. the Lord softening the heart of Ishmael before Nephi and his brethren arrived [1 Nephi 7:1-5]).
In sum, when we feel the Savior's love, we feel safe to dream big dreams because we do not fear the outcome because we know He is with us.