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Yeah that's how it's supposed to work, but every time I delete anything that's only saved locally it'll show up when I boot up Dreams again.
I tried to delete a ton of elements since my storage was at 0.99/1GB. The counter said that with all the stuff I selected I should be around 0.82/1GB. The moment I delete them, however, the counter goes back to 0.99/1GB. Then when I restart Dreams all my deleted stuff is back.
This is the same issue with photos. I can't delete them permanently. I delete everything until it's 0/128, but when I try to take a new photo it says my storage is full. I restart Dreams and they're all back. This is even after I delete them directly from my Media Gallery on the PS4 menu (I doubt they're stored like this but I was just trying my luck).