Your mind is really good at improvising when it needs to through the use of schemas that help us categorize and model the world. Say we see a chair that looks completely different from any chairs we've previously seen (something like this) your mind takes in the visual information and compares it with anything in the "database" and eventually comes to a conclusion that it is for the purpose of sitting on and labels it as chair, all in a split second time.

When dreaming, your mind is pulling stuff from that database and using it to make a virtual world that can feel completely real to us at the time. Pictures and videos of places we've never been before can show up in our dreams, we see pictures of Antarctica and our brain uses that to work up an environment in our dream that can seem very much like what it would in real life. It's easy to visualize the vast empty landscape, little vegetation, maybe some rocks and such. Most of us have seen snow so we can tell what that should look like, and most of us know what it feels like to be cold so we add that to the equation and thus can feel it in the dream. It may not be perfect but your brain is good at making stuff up and rolling with it during the dream. Even if the scene is completely wrong our brain rationalizes it so it makes sense to us until we wake up and realize that it wasn't perfect.