Melody, I am here to patch the broken bridge in your memory! This is similar to what we discussed while I was at your house - what we might do to revamp
Castalia. We were thinking about making the Castalia a sort of "dreamworld"; the characters would enter and exit it multiple times. Other "real world" people could get into Castalia, and what happened in Castalia was mirrored in the real world. Someone would get left behind in Castalia; they'd be missing or in a coma in the real world. Someone would die in Castalia; they'd be dead in the real world too. Lessons and morals, of course, were carried back and forth repeatedly!
It's a similar concept. One major difference is that Castalia was a set "other world." There was no rewriting of the elements by the people that visited. Also, some people in Castalia were natives. They were just used to "visitors" from America.
All of that to say, yes, I've heard of the general concept before.

But I would not in anywise let that deter you. There is nothing whatsoever new under the sun! But you can do something exciting with a familiar concept.
Personally, I think it sounds fun. I do not think it sounds new-agey, because I approach it like fantasy. It's not real, and that's fine. There is a lot of potential in exploring how the dreams correspond to real-life. I think the idea of being able to "rewrite" the world is fascinating, and there's a lot of potential for plot twists and morals. I especially like the idea of consequences if you stay too long in the dream world - no hiding from reality!
I've heard it said that dreams are your mind's conglomeration of everything it's been fed recently, and I personally can see this in my dreams. Even the mundane things will show up in my dreams in the most twisted fashion. I read a friend's letter about her moving out of the house; suddenly, in my dreams, I'm moving away from all familiar to a foreign place. That might be an interesting concept to pursue.