One very lovely effect that I sometimes like to use to enhance certain pictures, such as romantic pictures and children portraits, are different dreamy effects. There's more than one way to achieve this and there's also many different ways to create a dreamy mood. I'm going to go through the steps of the most important things to focus on during the creation.
To create a dreamy effect the number one easiest and in many cases most effective way is to soften the photograph. To do this you can go the easy way or a way a bit more complicated. The easiest thing you can do is to make a duplicate of your background layer and then go to filter-blur-gaussian blur and experiment with the settings. It doesn't matter if you blur it too much, you can then lower the opacity of that layer. This is not the way I prefer to do it though. I like to experiment with blending modes. A quick tip is to duplicate the layer, put the new one on SOFT LIGHT or OVERLAY and then add a gaussian blur you see fit. You can also make many layers with different blend modes and blur, and then lower the opacity as you like. SCREEN can in many cases create some stunning almost surreal effects when mixed well. When I want a darker moodier picture I use the blend mode MULTIPLY instead and on occasion mask out some areas where i want some light back. I always create my effects on a different layer so that I can use a layer mask if needed to bring areas back, such as eyes and lips that I want to keep a bit sharper.
When I think of dreamy pictures I imagine fading night time dreams...Something light, something with a little glow and magic. To reach that feeling I often end up lowering my saturation. In many cases I simply lower the RED AND GREEN tones and keep the blue as it is. Image-adjustments-selective color is a great way to have more control of your different tones, I use it all the time. After I have done this, I correct the color balance, I add in blue and cyan tones, sometimes only in the shadows or highlights. I do a lot of experimenting to find out what works for just THAT picture. Just remember that these aren't rules, you can create a dreamy looking pictures with warmer tones as well, even colorful ones.
This is not going to work with every picture and most often than not it's enough to use in a very subtle way. Filter-distort-diffuse glow is a quick way to add some dreaminess. Sometimes grain looks great on it, many times i leave the grain on zero though. Experiment with the setting and use this filter on a duplicate layer so that you can lower the opacity later if you like. This effect will make your highlights glow, and combined with the blur it will give a very dreamy effect.
4. Look closer.
Now take a moment and inspect your pictures. Are you happy with the light? The light is extremely important when you want to create a mood, and I can spend a long time changing it back and forward until I'm happy. If your image isn't light enough I advice you to make a background duplicate again and set it on SCREEN. possibly add in some subtle blur as well, and then lower the opacity as you see fit. If your picture is too light you need to add in some depth. You can use levels or the blend mode multiply for this. Remember that you do not ever have to use an effect on the ENTIRE picture, you can easily create a layer mask and then decide where it's needed.
Before doing all of this it can be a good idea to choose the right kind of picture for it. Some photos loose a lot of appeal when applying these kind of effects so you have to be careful. Details will not be the focus, the mood will be. So if you have let's say a beautiful highly detailed landscape picture you might want to keep it sharp and save these kind of effects for something different. Portraits are my favorite to use because the skin look so beautiful after, especially baby or children skin. I also like to use it on pictures where the background is not the focus. Sometimes I ONLY use it on the background.
While experimenting I have found many different ways to reach the results I'm after, and almost every time I enhance another picture i experiment some more. That's how I keep on learning!