Daydream was conceived when Nightmare forced himself on Betty Ross in a dream while she slept, as part of a long term revenge plot against the Hulk. Nightmare attempted to cultivate a hatred for humans and humanity in his daughter. Putting her into an amnesiac state, Nightmare relocated Daydream to Earth where she adopted the name Gwen. Gwen went on to become a singer and eventually associated with a man named Ripley.
Falling in love with Ripley would earn her father's ire and he would attack her in the form of Thunderbolt Ross. The Hulk broke through multiple levels of illusions, which Gwen revealed to be have been created by Nightmare. Fed up with the games, the Hulk decided to leave. Nightmare taunted him, revealing that the woman he "fathered" Gwen with was none other than Betty Ross. The Hulk attacked him, taking his horse and riding away across the sea. Gwen teleported herself and Ripley away, wanting to "live happily ever after."
Daydream possesses similar powers to Nightmare albeit on a lesser scale as she is part human. Daydream possesses the ability to enter the dreams and day dreams of humans and within this realm she can reshape things at her will. Her powers also allow her to teleport at will.