The greatest lines in Shakespeare’s The Tempest happen after the worst part of the play. You have to understand the context to get why this is a funny line to quote. Prospero has just entertained his daughter’s future husband with a supernatural show. It’s the play’s Fantasia moment. Prospero has been orchestrating this whole scam perfectly up until this moment when he remembers that Caliban has bribed the sailors to try and kill him and he stops the show suddenly.

I had forgot that foul conspiracy of the beast Caliban and his confederates against my life.

This is strange. Your Father’s in some passion that works him strongly.

Never till this day saw I him touched with anger, so distempered.

You do look, my son, in a moved sort, as if you were dismayed. Be cheerful, sir.

This is the exchange that happens before the strange rant Prospero deliver about the temporary nature of things. He is trying to distract Ferdinand from the red flag of his weird mood change. It is within this context that he says the famous quote.

We are such stuff as dreams are made on and our little life is rounded with a sleep.

Prospero’s anger leads to a dramatic speech he used to try and hide his rage. It isn’t a philosophical reflection delivered in a soliloquy. It is a performative speech designed to hide his true intention. Such stuff as dreams is cap.