You might be surprised that the speaker uses the word "where" to describe a dream. A dream isn't a place, right? Actually, there's a more formal way to say this:
Every so often I'll have a dream in which I'm being chased by some kind of monster.
But in normal conversation, "where" replaces "in which", "at which", "on which", "about which", and so on. Here are a few more examples:
I like watching movies where you don't have to think too hard.
He bought one of those expensive coffee makers where you can precisely set the temperature of the water to a certain temperature.