pretty much all of it. I get that it's some sort of game to his parents and his dad is trying to help him. I also think I get that it's nothing more than a dream where whatever happens in the dream it affects them in real lifelife other than that I don't get it.
A game... or probably more appropriate to call it the Nth round of their custody battle over their son (messiest divorce EVER).
The dream land and the dreams/flashbacks are the Erlkönig's doing as are probably at least partially the Shadow Beasts / the other main cast members. Also his seal is the eye-patch that blocks Jareth's magic. His original plan probably was something around the lines: Jareth gets a dream day and then he can demand "You Owe Me!".
The Fake!Sarah and the vines are the Jadis' magic. Her seal is the ring. Her plan was getting her son together with Fake!Sarah and locking him in the dream forever.
We can see that at the beginning the others try to stop Jareth from realizing the dream's nature, but after Fake!Sarah appears there is a change in the plan of the Erlkönig and try to wake him up.
Both A plans got foiled entirely, when Jareth broke the illusion (his father's) and denying Fake!Sarah (his mother's) but both had plan B.
Erlkönig: Getting Jareth's friends and Sarah to save Jareth.
Jadis: Pull out Dark!Jareth and let him destroy Sarah so damn her son to evil forever. Making this story a tragedy. (His love for the girl has a lot to do with Jareth being as nice as he is... as we saw in the Kid!Jareth arc. It would also break all belief Jareth ever had in his father's teachings about love and revised endings.)
In the endgame James' sacrifice pretty much foiled plan B's too... and Jareth broke the whole dream with his grief.
Erlkönig: Stealing James' soul and using it to get Jareth on his side. Which he denied, and took back with force (which probably implies that he has more power than anticipated... some people even theorize (me too) that his mystical domain includes the Building and residents).