When the Machines enslave mankind and trap all humans in the Matrix, it robs them of their ability to dream spontaneously on their own. This, in turn, greatly weakens Morpheus and causes the Dreaming to break down. To stop the Machines, Morpheus takes human form and helps free the one man in the Matrix who he knows can topple the Machines: Neo. This is why Morpheus' digital avatar always wears sunglasses--he's unconsciously mimicking the formless black eyes that he has in his true form. And this is why he comes off as distant and all-knowing, and why he insists on believing the prophecies about the One that other leaders in the Rebellion dismiss as superstition--he is one of the Endless, and has an innate knowledge of things that humans can only speculate about.