I've deliberately invoked lucid dreams before. The method I used actually sounds much cooler on paper: Periodically checking throughout the day whether you are currently dreaming or not. Not sure if it's the best method or my own insomnia that gave me lucid dreams, but if you're wondering what my experiences with them were like, it's mostly just using your imagination for a mental theater with a somewhat fragile sensation of immersion/realness. Entertaining a dream's original scenario lets you develop it however you want, though making big changes to the scenario often shatters the sense of immersion, which is pretty on-point for the RP.
As for Damon, sure, why not. Alarms that wake you up 3.5 hours after you go to sleep shouldn't be anything new for him, and speaking from experience, a dream (in that particular scenario) can be continued in your imagination while awake, it just won't have the same real/immersive feeling. It's like the difference between being a character in a play, with things happening and people doing things around you automatically, as you expect them to, versus putting on a play with puppets, having to control every little detail yourself.
Might have Damon go for the method I used after the first time, since, while it doesn't work on demand as an alarm might, having his sleep interrupted on the regular is a no-sell, and I can't imagine him being capable of regularly dividing his sleep the way the alarm method demands.