Unfortunately, because both Alex and I are out in the field right now we can't really watch videos (the page won't even load for me) so I can't be sure what it says. The 'observer', shall we say, isn't a fixed point. It generally wouldn't be 'in their head' but they could be watching it from several meters away, and then the 'viewpoint' might jump to just over the shoulder, etc etc. The dreamers can and do have some knowledge of the other person (thus the caveat that not all dreamers will be compatible and some will find themselves being forcibly ousted from the dreams of others) but it's on a more subconscious level rather than a conscious one.

IE: Toph might recognize that Zuko shouldn't be in her dream, and it may make her feel uneasy, but she might also go 'YES I'M GETTING MY LIFE CHANGING ROAD TRIP!' and simply incorporate Zuko's presence into the fabric of her dream. It's essentially shared lucid dreaming. Communication is possible, depending on the context of the dream.