This is Weird Dreams, a Rainbird Software game for MS-DOS that eventually got ported to the Atari, Amiga, and C64. It's about a dude who, as the title suggests, has really weird dreams thanks to his girlfriend who's possessed by a bored demon, and fortunately we can all relive its haunting glory thanks to the return of the Classics of Game YouTube series.
For the uninitiated, the channel specialises in short, bizarre clips from old games. Usually they put some mechanical shortcoming or visual absurdity for viewers to laugh at and wax nostalgic about. Other times it's just really strange nonsense completely free of context.
The clips are hardly random, however. If anything they're chosen and crafted with great care and love for the original source material. It's not machinima per se, but it's definitely more intentional than your average Let's Play or off-the-cuff Twitch stream.
Most of the segments would fit right at home in-between commercial breaks on Adult Swim and follow a logic similar to the random jump cuts in an episode of Robot Chicken. Like, for example, here are some dancing newts, or geckos, or whatever.