This is a repost I made from the DLC OT.
My interpretation of everything thats happened in the game and what lead to the hunters dream is that Laurence, Willem, Micolash and the rest of Byrgenwerth along with the Old Hunters(Maria, Gehrman) arrived a the fishing village and ravaged the place. They performed experiments on/killed the citizens and then found the corpse of Kos on the shoreline. When they arrived, they found the Orphan within its mother. They killed it and took the umbilical Cord which Master Willem sought, to line his brain with eyes. For their sins the Curse of Kos was placed on them and anyone who called themselves a hunter. "Curse the fiends, and their children too, and their children, forever true."
Lady Maria, disgusted with that they had done threw away her weapon and renounced her life as a hunter but became disillusioned. She had no place anywhere, being a descendant of Cainhurst who chose Gehrman/Byrgenwerth over her blood ties. She takes her own life. And like all other hunters becomes trapped in the Nightmare. Gehrman, who was seemingly obsessed with her created the Doll in her image to quell his profound sadness.
With a Third of the Umbilical Cord Master Willem is able to ascend Rom to great one status, or kin(who knows really). The affects of the bug-like Rom are seen on the remaining Byrgenwerth scholars when we arrive, which is similar to the affect Kos had on the villagers in the Fishing Hamlet(straight up Lovecraft, that place). Micolash and Laurence are both there to witness the ascension. Sometime after the ascension of Rom, Laurence leaves Byrgenwerth, taking the knowledge of blood and 1/3 Umbilical Cord with him. I speculate Micolash left with him taking a third of the cord as well, but delved into his own work of attempting to beckon a great one, which resulted in Mensis being trapped in the Nightmare and Mergo's beckoning. Mensis' rituals drew the Palelood Moon closer, however it isnt until Laurence uses his 3rd of the Cord to beckon the Moon Presence outright, does the nightly Yharnam hunt reach full bore.
Back on track; Laurence founds the healing church and their hunters after Byrgenwerth and begins the practice of Blood Ministration. At some point Laurence becomes aware of the Hunter's Nightmare. My speculation is that Ludwig was aware of it and passed on the information to Laurence. How did Ludwig know? Well, his guiding Holy Sword is of the Moon. And what great one do we know is of the moon? The Moon Presence let Ludwig know of the nightmare whenever he closed his eyes and peered into the abyss.
[Next section is sorta piggybacking off of a post on reddit which does an excellent job of explaining the nature of the dream.
https://www.reddit.com/r/bloodborne/..._central_lore/
When Laurence becomes aware of the nightmare and the hell that awaits all Hunters and himself he uses his 3rd of the Umbilical Cord to beckon the Moon. Perhaps the moon presence required a surrogate or just someone to carry out its plans(killing the Nightmare Newborn that Mensis beckoned?), in exchange for Laurence and the Hunters gaining salvation from the Nightmare/Curse of Kos. Laurence convinces Gehrman to remain with the MP in the dream, perhaps promising to reunite him with the woman he obsessed over, while he attempts to solve the problem of the curse. The Moon Presence being a great one who is sympathetic in spirit, animates the Doll. However it isnt the same to Gehrman, he resents the Doll, which would explain his whispered comment at the beginning of the game; "Even the doll should it please you".
Unfortunately Laurence transforms into a beast before he is able to find a solution to the curse and is killed(Some speculation points to Brador being the one who put Laurence down). His mission failed, the first Vicar is cast into the Nightmare along with the Hunters of old. "Oh Laurence, what's taking you so long, I've grown too old for this, of little use now, I'm afraid." Gehrman has grown to old for the Hunt the MP has asked for, so new hunters like the Djure then the player are found by the messengers and carry out the duties instead. In the end they are meant to accept death and be returned to the waking world.*
Micolash began rituals in Mensis which pulled the moon closer and eventually beckon Mergo with 1/3 of Cord. The rituals they perform are failures and success all the same. They managed to inadvertently create a great one(the brain of mensis) within the Nightmare and beckon Mergo. However, they spawned an abomination into the waking world(The One Reborn) and were pulled into a Nightmare.
At this point the Paleblood Moon is already having affects on Yharnam(even before Laurence directly beckons the Moon), however it is obscured by the Vacuous Spider in Byrgenwerth. The player arrives in Byrgenwerth kills Rom and the effects of the rituals and beckoning of Mergo can be fully seen in Yahargul/Yharnam. After this we kill Micolash, the Wet Nurse, and go to speak to Gehrman. If we've gained enough inisght(found all 3 thirds of Kos' Umbilical cord) and accumulated enough Blood we can overcome the MP and usher in a new age of Humanity. If not we just become another pawn for the MP and the hunt continues.
*Or we can accept death and be returned to the waking world, without memories of the dream. But think about this. Suppose the character never learns of the Curse of Kos and is not able to break it. After returning to the waking world, once they die, they are destined to be trapped within the Hunter's Nightmare.
Any thoughts? I feel like alot of this has already probably been covered in here hah