The three mental states of waking, dream and deep sleep are unreal, because they have no permanence.

This Self is dearer than a son, dearer than wealth, dearer than everything else, because It is innermost. If one holding the Self dear were to say to a person who speaks of anything other than the Self as dear, that he, the latter, will lose what he holds dear—and the former is certainly competent to do so—it will indeed come true. One should meditate upon the Self alone as dear. He who meditates upon the Self alone as dear—what he holds dear will not perish. -Bhad  upanishd -8-p-p-211-

Deeper self-search reveals neither waking entity  nor the  the dream entity the true self.  The formless witness of the ‘three states ’ is the  Self.  The formless witness is Soul or consciousness. 

 People think 'I' without the body is the self whereas 'I' is not limited to the physical body because 'I' is the Mind.  Mind is  present in form of the whole universe.  Universe appears as waking or dream.   

  The three mental states of waking, dream and deep sleep are unreal, because they have no permanence. waking entity and waking world are reality within the waking experience. The dream entity and dream world are reality within the dream.  The waking is parallel dream and dream is parallel waking.  And his experience of the world is reality within the waking or dream. From ultimate standpoint  the point is the waking is also as unreal as dream. They come and go.  Thus one has to realize the fact that,  there must be a knower [witness] of these three states which appear and disappear in succession.

One knows nothing about the deep sleep except the recollection of its repose on waking. And on waking one becomes aware the dream is unreal.  The reason for this is the apparent absence of continuity of events between two or more dream and absence of corroboration about the dream on waking. 

 It is erroneous to view and judge the three states on the standpoint of the waking entity. When the inquiry and reasoning reveals the fact that, physical body is not the self, then it is clear that one which is without the body(formless) is the knower of the three states, which come and go. Therefore, it is erroneous to view and judge the three states on the standpoint of waking entity or ego. Thus there is a need to to become aware of the formless witness of these three states.  

Even the dream is self contained and it has perfect inner logic and sequence. During the dream experience the dream entity and the dream world are reality, within the dream.  But the dream is unreal. Similarly, the waking entity, and waking world, is reality within the waking, but the waking is unreal on the standpoint of the  Soul or consciousness, the innermost  self.

However, if one analyze deeply one becomes aware every state is self contained; it has perfect inner logic and sequence.  During the subsistence of the dream there is no doubt about its reality. Thus one can easily conclude that each state has its own illusion which can be got over only if one wakes up from that particular illusory state into another.  Just as the dream appears unreal to the one who is awake, so too would waking itself be if one awakes from it to the non-dual natural state.  

 Natural state of the soul, the innermost self  is ‘I’-less [duality less] state in which the mind stays merged in the soul or consciousness, the innermost   self.  It is only when one traverses beyond the mind  or form,time and space, through soul-centric reasoning,  that it is possible to mentally  negate all the three states.  

The observation of the three states will depend upon the medium through which the observer views it. Infact, one’s mental and intellectual conditions will determine the dual and non-dual experiences observed and experienced.  The religionists viewing the three states will see it differently from the spiritualist viewing the same three states.  Each one interprets the three states that he observes in term of his existing knowledge. 

 The man of truth sees Atman in everything and everywhere. Because he is fully aware of the fact that, the Atman pervades in everything and everywhere in all the three states, therefore he has the firm conviction that everything is Atman/spirit and no second thing exists other then the Atman in experience of diversity. Then only unity in diversity is possible. Thus three state analyses is the one of the step in pursuit of truth. 

Just as a dream appears “unreal” when waking takes place, the waking becomes unreal when the wisdom dawns.