"Which dreams, indeed, are ambition" in Hamlet Act 2, Scene 2

Question

I am reading Hamlet; Act 2 Scene 2 contains the following exchange:

Hamlet: O God, I could be bounded in a nutshell and count myself a
king of infinite space, were it not that I have bad dreams.

Guildenstern: Which dreams, indeed, are ambition; for the very substance of the ambitious is merely the shadow of a dream.

What is the meaning of

Which dreams, indeed, are ambition

What does the "which" refer to? The previous dreams? I understand it means "dreams are a sign of ambition". How does this follow grammatically?

Answer 1

In this specific context, "which" is a relative adjective that refers back to the dreams Hamlet spoke of. Merriam-Webster gives the following example (emphasis mine):

Our next meeting will be on Monday, at which time a new chairman will be elected.

Below is another example from Linguapress (emphasis mine):

He reached the village, at which point he stopped for a drink.

So it is as if Guildenstern completes Hamlet's last sentence: "I have bad dreams, which dreams, indeed, are ambition; (...)". Just a moment earlier, Rosencrantz had said that it was Hamlet's "ambition" that made him regard Denmark as a prison.

Note that "ambition" did not necessarily have the positive connotations that the word has today, as can be seen from the examples at Why is Macbeth's “vaulting ambition” so important and famous?.

Answer 2

Here is Merriam-Webster on this use of which

used as a function word to introduce a nonrestrictive relative clause and to modify a noun in that clause and to refer together with that noun to a word or word group in a preceding clause or to an entire preceding clause or sentence or longer unit of discourse

[In German, which language might … have been the medium of transmission.]

— Thomas Pyles