Sri Aurobindo translates Katha Upanishad, Second Cycle: Third Chapter, Verses 4-5: “If in this world of men and before thy body fall from thee, thou wert able to apprehend it, then thou availest for embodiment in the worlds that He creates. In the self one sees God as in a mirror, but as in a dream; in the world of the Fathers: and as in water one sees the surface of an object, so one sees Him in the world of the Gandharvas. But He is seen as light and shade in the heaven of the Spirit.”
Verse 4 focuses on the result of a shift to the divine standpoint while embodied in this world. This shift makes it possible for the soul to take birth in any world or plane of existence in the entire manifestation, as the soul is then consciously united with the Divine and thus, shares the same capacity of manifestation. The divine standpoint provides the ultimate freedom to the soul in the creation.
Verse 5 describes the mode of perception of God in various states of existence. For those whose gaze is directed outwards, they do not perceive God in the external forms generally. If they turn their gaze inwards to the inner self, they quiet the mind-stuff, quell the perceptions of the senses, and they can then reflect the apprehension of God as in a mirror. The world of the fathers, the ancestors if you will, is one that honors the working of karma through the chain of cause and effect, as the ancestors and their actions in the past cause our current existence and the actions of the present. The perception of God in this realm therefore is as in a dream, as it flows and changes and does not take on a definitive form, thus impossible to grasp solidly. The Gandharvas are heavenly beings who live in a space beyond the physical world, what we may call a vital or astral plane of existence. The vision of God in this realm is as seeing an object in water, which can be either extremely clear in calm water, or distorted and broken up into facets in moving or disturbed water. In the “heaven of the Spirit” God is perceived as light and shade. Light is the constant symbol of the Divine throughout the world and the ability to perceive the distinction between light and darkness implies a clearer vision of the distinction between the Divine in its true form and the darkness of our outer state of fragmentation and separation from the source.
Sri Aurobindo, The Upanishads, Katha Upanishad, pp. 213-241, and Kapali Sastry, Lights on the Upanishads, pp. 104-129