Well to start off, I rarely remember any of my dreams. It must have been months or even years since I've woken up with a dream so vividly in my head, so much so that almost a week later it all seems so real in my head. I suppose an important detail to the dream is that I am currently in an ongoing 2 year relationship, and for the past 2 months my girlfriend has been in a different state, she is not set to return until August.
The dream started with a group of my close friends on our way to a party. Everything about the area closely resembles where I currently live, except for the house we went into. Once we got to the party, I realized the only people I knew there was the group I came with. In that group there were 2 male friends (1 of which I have known for 7 or 8 years) and a female friend. During the party we all end up going our separate ways, and eventually me and my female friend are alone in a room. She asks me a very strange question, something like "I'm about as tall as your girlfriend, right?" to which I reply "Yeah". Then we get closer and start kissing and becoming more intimate. We never have sex however. This continues throughout the dream for awhile. Us sneaking around, kissing, holding hands, etc. We are eventually "caught" by my other friends we came with, but not before we make dinner plans for later that night. The dream continues with me getting into a fight with some rowdy people outside for criticizing my "ex-gf" (although there was never any indication in the dream that we had broken up).
I awoke with this very real sensation that what happened was real. It was definitely  the most linear dream I can remember having in a long time, and I was most distressed with the fact that I was so happy upon waking up. I didn't feel guilty or sad or anything, just happy. I have since seen this girl several times throughout the week and each time I start thinking about her more and more. I feel very conflicted and I was wondering if anyone could give me some insight on this.

Thanks a lot

Whether this dream has been real or not, in this dream you had an affair and/or a love-relationship with this woman, and it felt good.

Of course, now the question is, would it feel good in the physical reality, too? It could, but not necessarily, it's simply dream reality is not physical reality. Dreams can tell us something about our wishes, desires which we are not consciously aware of in the waking state. In dreams we allow us to freely generate situations which are not subject to our waking minds; often enough it are situations which conflict with the situation of our physical life.

When we think about it, we can imagine many alternate realities. For example, you can imagine to have a relationship with your present ladyfriend, as it is, but you can as well imagine to have a relationship with your other ladyfriend, who appeared in your dream. I consider this to be one of the main problems of life, as often there is no clear reason why one should chose possibility A over possibility B. Therefore one possibility of the two is suppressed, as otherwise we would not be able to function in this world, but would be entangled in an endless decision-making process.

So, as Bets said, you have to wait and see until one possibility of the two fades away more and more from your waking-state mind, and this one then is likely to come back in dreams, which we could interprete as a substitute for the elimination of possibilities through the choices we necessarily have to make in the physical world.

Spooky