A nice little demo :) The concept is interesting, I wish I dreamt like that! Gameplay may need a little work. I like the Visual Novel parts, but I think going between that and mostly battle quests might get tiresome. It wouldn't hurt to have more rpg based elements, exploration, npcs to talk to etc.
The portraits were really well done. It would be nice to see them have full emotionsets. The script could do with a proofread, there were a few places where the grammar went wonky, and some places where the scenes just fell a little flat.
Other than that, you guys are off to a good start. Happy developing!