Final answer:
The theory of dreaming being referred to is the activation-synthesis theory, which hypothesizes that dreams are our brain's way of interpreting neural activity during REM sleep.
Step-by-step explanation:
The theory of dreaming referred to in the question is d. Activation-synthesis. The activation-synthesis theory was developed by neuroscientist Alan Hobson and suggests that dreams result from the brain's attempt to make sense of neural activity during REM sleep. This theory has evolved to propose that dreaming may represent a state of protoconsciousness, wherein our dreams construct a virtual reality that could be beneficial in our waking life. Research on lucid dreaming has contributed to our understanding of this theory as it presents a scenario where aspects of wakefulness are maintained within the dream state.