Dream Drop Distance will probably make a lot of sense when we know more about the game. For instance, it's confirmed to be set in the Realm of Sleep with enemies called Dream Eaters. That takes care of 'Dream'. :3
I think the irony was intended?
I think the "Dream Drop Distance" was chosen for the 3D thing, but I know it will be easier to understand when it's out. I think it mean "how deeply(distance) you fall(drop) into your dreamsrolleyes".
It probably won't be mentioned in game, but I think so, if it wasn't just a mistake in English.