With scenes... and dialog.

I like to use an object or a photograph that the editor can use to match cut or dissolve to (for instance, old photograph at the end of one scene to a shot of the same photo, only new and undamaged can indicate passage back in time).

Or your character can simply get a thoughtful look while hearing him or herself in voiceover in the current scene, then change to the to the scene in which the dialogue continues.

Formatting is the same no matter what you're doing. Use visual and/or dialogue cues.

INSERT: DREAM SEQUENCE

Then do your whole dream sequence and then

END DREAM SEQUENCE

At least that's the way I've been formatting.