I think your brain fills in the things you know for what you don't know. I have falling dreams sometimes, when I've never experienced anything that drastic in RL. I've never been sky diving, but I have fallen before... high diving boards, trampolines, and even turbulent plane flights. I think your brain simply takes those memories of sensations and uses them. I assume that explains how you do things in dreams that you havedone before, and I think it just stretches those memories.

I've never been in a hot air balloon. I've seen tons of pictures of them, watched videos, etc. I can imagine just what it would be like to be inside of one, and if I spend time to consider the texture, sound, feel, even smell of a hot air balloon I can sort of day-dream it, although I'm not sure how real it would be. I think that's probably the same process your mind goes through while dreaming something new.

I had a dream I was friends with the Spice Girls. Besides knowing who I was, they acted just like I always assumed they do based on the movie they made that I watched as a kid. Man that was a strange dream hahaha