The Mirror of Dreams was a mystical Chinese artifact, made of three separable pieces (the Heart of Kouru Watu, the Dragon Shard, and an unnamed final piece), used to illuminate otherwise invisible traps, floor tiles, and other objects in the Emperor's Tomb, allowing its possessor to safely travel into the crypt of the First Emperor of China.
On an archaeological expedition to Ceylon in 1935, Professor Indiana Jones acquired an idol called the Heart of Kouru Watu. He was attacked by Nazi colonel Albrecht Von Beck seeking the same artifact because, unbeknownst to Jones at the time, the Heart contained within it the first piece of the Mirror of Dreams. Jones escaped with the Heart and flew back to New York.
Back at Barnett College in New York, Marshall Kai and his assistant Mei-Ying confronted Jones about the Mirror. Mei-Ying, secretly a Chinese undercover agent, held the Heart that was on Jones' desk and suddenly smashed it open. Although Jones was at first alarmed, he soon discovered that within the Heart was the center piece of the Mirror, a small spherical object.
Kai sent Jones to Prague, Czechoslovakia to search for the second piece of the Mirror of Dreams. Jones encountered a Homonculus while searching. Indy defeated the beast and as Jones was leaving, however, he again encountered Von Beck who knocked him out with gas, taking the second piece.
Von Beck headed to Istanbul, Turkey, to subject Jones to torture and to find the final missing piece of the Mirror. Mei-Ying turned up in Jones' cell and freed him. After Jones battled a huge Turkish kraken, he obtained the final piece of the Mirror and Mei-Ying reappeared to warn Jones that a plot was taking place. She revealed that Marshall Kai was actually the head of the Black Dragon Triad in China and formed a pact with the Nazis to find the Heart of the Dragon, another artifact within the Emperor's Tomb. But once Jones had beaten Von Beck to the first piece, Kai had saw his opportunity to double-cross the Nazis and find and keep yet another legendary artifact, the Heart of the Dragon, for himself.
The Mirror was put together from its three pieces and Mei-Ying and Jones headed to the tomb where its mysterious light revealed numerous traps, helping Jones manage his way through the tomb.