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Meaning

An unrealistic hope or fantasy.

Origin

The allusion is to the dreams experienced by smokers of opium pipes.

The early references to the phrase all originate from in or around Chicago. The earliest I have found is from The Chicago Daily Tribune, December 1890:

"It [aerial navigation] has been regarded as a pipe-dream for a good many years."

This information was drawn from http://www.phrases.org.uk/meanings/283700.html

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