this tutorial will show u how easily to apply the dreamy effect to a photo, even if your picture is pixelated and of a low quality, you can steal get a good looking image, something like:
After applying the tutorial:



and before (original image):



full example image:


All you need to do is open the image u start off with (here is my initial image):


Now duplicate the image twice. select the most upper layer and apply Gaussian blur. Filter >> Blur >> Gaussian Blur, these settings:



Now set the layers opacity to about 50%



even though on the example below there are only 2 layers as i always add them one by one, you should in the end have 3 of them.

Now select one layers below the one we just blurred and apply the glow effect on it. Filter >> Distort >> Diffuse Glow. The full settings are on the screenshot:



The image is nice blurry with a dreamy touch now. But, if you want to go a bit further, create a new layer (Shift+Ctrl+N) and select any starry brush. You can download them on deviant art, if you have difficulty finding them just post below and i will get it for you.
Choose the white colour and apply the bushes chaotically, so that they will concentrate around the face's sides and shoulders (IF u use this particular image). When you are done, click in the upper menu Layer >> Layer Styles >> Outer Glow. Choose the white colour for glow and apply these settings:



That is it! the final result is the first image we had. Good luck with the tut!