So indulge me for a second - this makes a lot of sense courtesy of the "Dream Moods" website. (Have you noticed that I bloody love this kind of crap?):

To see a puppy in your dream, symbolizes your playfulness and carefree nature. It also represents a blossoming friendship or that your friendships will grow stronger.  To dream that you are taking care of some puppies, indicates that you are a trustworthy and loyal friend especially in difficult times.

Sure, but in my dream the puppy, though quite sweet, is also kind of aggressive towards the caterpillar. This would make sense so far as recently I've been having to be very forthright about certain values that I keep and to defend these usually positive, lighter aspects of myself as they threaten to overtake issues that might require me to apply a more intuitive and mature attitude. Though friendship always plays an integral part in my life, there is one particular friendship that I hope I can keep and will blossom in time.

To see a caterpillar in your dream, signifies a stage in your own personal growth and development where you are on your way, but have not yet reached your goal. 

This could mean absolutely anything really, but of late I have been concentrating a lot on certain areas of my life concerning careers and general maturity that in a way are threatened to be quashed by my generally easy nature. At the moment I feel uncomfortable with responsibility and am trying to shut a lot of it out by sticking my hands over my ears/being childish about it/pretending it doesn't exist. This makes quite a lot of sense.

Depending on the context of your dream, the color blue may also be a metaphor of "being blue" and feeling sad. 

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To dream that you are in a cage, denotes that you are experiencing some inhibitions and powerlessness in some areas of your life. You may feel restricted, confined and restrained in a current relationship or business deal. Somebody may be keeping a short leash on you where you are lacking the freedom to act independently. To dream that you are putting a wild animal into a cage, signifies that you will succeed in overcoming your rivals and fears.

The caterpillar gets out of control and manages to leave its cage and the puppy goes ments and starts growling at it. But all in all, the cage is superficial and the bars are too wide, and its tormentor/guard is just a little dog. I'm uncomfortable with touching handling the caterpillar because I find it grotesque and am worried it is poisonous. 

This seems like an ambiguous dream - it is cathartic in the way that it represents a conflict between my carefree side and the side of me that's telling me "ok, you've gotta start taking a bit more responsibility over your life". It's an admission that I need to start taking a bit more control over things, but it is also a warning that this must not be detrimental to my ego and my personal nature. 

This follows some recent conversations with a recently-made and now very close friend who despite the fact I get along with them well and wish to maintain their friendship, does not necessarily share the same value structure as I do and therefore there is a healthy amount of conflict in our attitudes.

Or maybe it's just a dream about a dog and a caterpillar, who knows??