Variables that aren't being observed still have to be tracked, since they affect the things that are being observed.

Dreams are not a very good proof of concept given that they are not coherent simulations of any sort of reality, and can be recognized as artificial not only after the fact, but during with a bit of introspection and training.

In dreams, large amounts of data can be omitted or spontaneously introduced without the dreamer noticing anything is wrong unless they're lucid. In reality, everything we observe can be examined for signs of its interactions with things that we haven't observed, and that data adds up to pictures that are coherent and consistent with each other.