Memory Categorization

Recall your memory of a favorite waking experience.

Recall your memory of a favorite dream.

Recall your memory of a persistent fantasy/daydream.

I was just thinking about how, often, such memories are so clearly categorized- waking experience, dream, fantasy, daydream, etc. There are other cases, for many (I would guess), where the categories are not clear, and memories, often from long ago, might have happened in one context or another. I personally have a handful of these memories, mostly from childhood, that don't rightly make sense as purely any of these categories, with their transitions long since removed. 

So what are these "categories?" Are they like a digital tag embedded along with that arrangement of neurons? Are they a kind of color applied- sensed only by the part of the mind assigned with providing context- that identifies the stage, but can fade over time? They must be something, or remembering a waking experience, a dream, a fantasy, a daydream, would all be on equal footing, when viewed in retrospect. 

So what would happen if these categories were shifted? What would then happen if the overall system- your mind and everything else- were rebooted at this point? What if the system has a kind of fail-safe embedded, where, if no data can be found in the main system, it reimages based off of the data in any remaining subsystem, rather than failing entirely? Could such a state result in beauty? Could such a state persist, in a microcosm, in the first stage- individually recategorized without an overall reboot- without devolving into madness?

Peril lurks within these questions, but a singularly perfect outcome might be all that is required...