It is random. They go to public rooms and guest rooms. They go to any instance of a room. I know that some have been successful hopping around hunting out a host, I do not see how this works as there are SOOOO many rooms and instances.
As for how it works:
I was standing in Adventureland Bazaar with friends one day. Fin popped up in the doorway and said, "Congratulations, you have all won the Dreams Pin." We had a few seconds to say, "omg!" "oh wow thanks!" "Yay Fin!" and she said, "Keep Dreaming!" and was gone. Woot Fin!
I was a lucky room winner as well and that time worked a little differently. I was sitting in New Orleans Square in "my spot" on a bench with a friend. There were many others in the room, idk if it was full or not.
Hula entered. Everyone said various, "Hi Hula!" "omg Hula!" "It's Hula!" She said hi to everyone and told us all to stay put as we had just won dream ears and she needed to get titles. Various versions of "yay, thx!" and "omg, yay!" were seen. Then she walked over to the bench were we were sitting and said, "And Jegrezo you are sitting in the lucky seat. You win the room!"

Not entirely sure what happened next as I was on the phone with the friend that was next to me and we were both screaming

, but that's the general idea. After that we went to my room, Hula soon showed up, told me that my furniture was in my inventory and gave ears to everyone in the room who did not have them. Rock on Hula!
I have only seen Lily once. I entered a Castle Suite room that has just been won. Lily was talking with some players about Dreams Prizes and the owner booted me.

So, I can't tell you how Lily gives out things as I have not seen a Dream moment with Lily. However, I am sure with the same excitement as the other 2 Hosts.
Only Hosts give out prizes, not staff (VMK_ titles).
In my experience, it really is lucky place at the lucky time. If others have figured out a "system," I surely am clueless to it.
I also think that as difficult as it has been to sit and wait and hope to see a host, it can not be an easy month for them either. They know that players are wanting these special prizes and I truly believe they are doing everything they can within the rules they are given to share the magic with as many players as possible. What fun it must be to get to give surprises out all month long!
Good luck. And dont stop dreaming.
- Dreams