Translation:I had a dream last night.
Of course it is correct. Even the reverse"I dreamt yesterday or "I dreamt last night"... They must update their IA and expand the accepted phrases for practically all sentences... When will they move their butts..?
"I'd a dream last night" can't be considered proper English - that's not where the contraction would go in actual speech.
Yes possibly nobody says "I'd" for "I had" these days. It might still be dialectal in some country areas of England perhaps. But it's absolutely not usual. It probably is grammatical but should not be used on Duolingo.
In American English, forms of "have" can only be contracted when used as a modal verb, but British English may have more leeway.
I'd a bet your statement is incorrect.
My answer was, 'Last night I had a dream'. It was rejected. I am never going to test out of these skills because I keep getting caught for semantics. smh!
You're giving them too much credit saying you're "getting caught for semantics." Their answer while perhaps technically correct is certainly not idiomatic. I'm only learning Mandarin, but I'd wager your answer is a far better one!
Duolingo should really do more to warn people that this is what they'll find when they use a beta course. It seems from many comments like these that few people are aware of what to expect from beta courses.
This course often accepts contractions where it won't accept the non-contracted form. Contractions are not preferred; if anything, the opposite is true.