What does "Tell him he's dreaming" mean?
It means the idea is ridiculous and will not happen. It comes from The Castle, and Australians still use it for a price or plan that is way off.
The saying in a sentence
The saying
Tell him he's dreaming
Example
Bruce reckons he's going to sell his house for a million bucks. Tell him he's dreaming!
When you use it
Use it when a price, offer, or request is absurd, usually with a laugh.
When you do not
It is too slangy for a formal refusal. Write that is not realistic instead.