Option #1: Oblivion in laudanum.
The solution is extremely Victorian: F.F. Gebrandt's Superior Laudanum, to help you sleep at night. You can find it in the Echo Bazaar (click the "Bazaar" tab), in the shop Nikolas Pawnbrokers. Each bottle costs one Echo, which can be quite pricey if you're trying to sell Whispered Secrets or the like in the Bazaar.
Drinking laudanum is bad for your health, and your Wounds quality will increase a bit one change point), but you can reduce that with F.F. Gebrandt's Tincture of Vigour. I imagine that Gebrandt is an extremely wealthy lady. Alternatively, you can just rest at your Lodgings if your Wounds quality is 3 or higher.
Once you become a Person of Some Importance (PoSI), as with the Tincture of Vigour and Ablution Solution, this option will become less viable; unlike the other two, it will also have a nasty side-affect: every time you drink a bottle of the stuff, you'll become slightly more addicted to it, resulting in the Laudanum becoming less effective.
Option #2: We're all mad here.
Go to A state of some confusion. It will discard and replace all of your Opportunities with new cards, so don't do it if you really like your current Opportunities. Almost all of the Opportunities and actions available in confusion will decrease your Nightmares (though some will abuse your base stats a bit, and one or two will increase your Nightmares while giving you something else you want), and you will leave A state of some confusion once your Nightmares drops to zero.
There are two ways to get to A state of some confusion:
- Go to Mrs. Plenty's Carnival, into the House of Mirrors, and then Gaze Into Dream's Mirror, which requires that you have at least one in Nightmares.
- Let your Nightmares quality increase to 8. You'll be taken there immediately.
A state of some confusion doesn't cost you any Echoes, but has a much worse action-efficiency compared to drinking laudanum. (Laudanum seems to do about 4 change points of Nightmares reduction, and actions in a state of some confusion are more like 1-2 change points of Nightmares reduction.) Not all actions there will decrease your Nightmares, but drinking laudanum will waste some of your time with curing your Wounds, so it's a wash; there's some good reasons to just let yourself go mad. Unfortunately, a few of the actions in confusion have a chance to abuse your four main qualities, and there are a few other small-ish drawbacks, so it's not all upside.
Option #2 if you have Memories of Light: we're all mad here, too.
If you have 10 Memories of Light, then you can spent two of them to go to the Mirror-Marches instead of A state of some confusion at the carnival. If you have at least one Memory of Light, then getting to 8 in Nightmares will take you here instead. The Mirror-Marches are much more generous than A state of some confusion; your main qualities won't be abused nearly as much, and actions that remove two or more points of Nightmares are much more common.
Option #3: Psychotherapy.
In your Lodgings, you'll get an option to Find a way to deal with your Nightmares if your Nightmares quality is 4 or higher. Spend a Sudden Insight (possibly gained via Invite a friend to join you in something terribly intellectual from your Lodgings), and you'll lose 5 change points of Nightmares. Your friend will gain one change point of Nightmares and also spend one action, so you should return the favor sooner or later.
Best Answer
These acquaintances are unlocked in several places, and they have storylets for increasing your friendship with them, usually via buying them something or doing a favour.
The Repentant Forger - If you end up with your Suspicion above 8, you'll be thrown in New Newgate again, and can meet him via an Opportunity Card. Befriending him will allow you to meet him in Veilgarden, where he can help you with increasing your Fascinating quality.
The Regretful Soldier - You can met The Regretful Soldier via an opportunity card while in Watchmaker's Hill, as long as your Dangerous quality is above 45. If you talk him down and prevent him from fighting (which involves having a Persuasive quality of around 45), he'll become your friend.
The Sardonic Music-Hall Singer - A character within the 'Missing Person: Absconding Devil' series of storylets in Ladybones Road (unlocked at Watchful 12), as well as the 'Bag A Legend' ambition. She also appears in an Opportunity Card that is unlocked with a Persuasive quality of at least 89. Each of these will let you befriend her.
The Wry Functionary - If you attend the Ambassador's Ball in Veilgarden (Persuasive quality of 56 needed) and get the 'The Darling of the Ambassador's Ball' quality as a result, you'll be able to correspond with him via another storylet in Veilgarden. On a rare success, you'll gain him as an Acquaintance, and you can meet with him in the Shuttered Palace once you gain access to it.