He thus proposes to consider dream material on its own terms. Broadly speaking, Freud shows that dream interpretation has to be of a particular kind because a dream is the fulfillment of a wish broadly, the wish that it not be understood at the level of its manifest content. A dream invariably contains a disguised message relating to the dreamer's sexuality. The short answer is that sexuality is essentially disguised - has to be disguised, we could add. By this is meant that sexuality has to do with signs and the symbolic.
Displacement here means circuitous path.
In The Interpretation of Dreams, Freud defines displacement as one of the ways dream-work disguises the unconscious message of the dream. Together with condensation, it forms part of the primary process. Condensation refers to the way the manifest content of a dream is meagre by comparison with the wealth of dream-thoughts which may be derived from it. Each dream element may give rise to multiple lines of association. This Freud called overdetermination.