Ok, I've heard that it was all a dream. But which episode is it? I think its "Al Bundy, Shoe Dick" but I think I've seen that episode in syndication and there was no mention of the pregnancy, or I didn't catch it.

Also, how is it explained? Because I've seen every episode multiple times and I really don't recall a scene where they explain it.

Also, this may sound really stupid, but I could've sworn I saw an episode, when it was still airing new episodes, that started out where Al and Jefferson walked into the Bundy house, and they were laughing. Then Al said that him and Jefferson put the babies in a river and they floated away. Did anything like that ever happen, or did I just dream it?

Although I haven't seen that episode in its entirely, I do believe that's the one where the "dream" is revealed.

My understanding is that they wrote the pregnancy into the show because Peg Bundy was pregnant in real life, and decided to drop it because she miscarried. Hence, the "it was all a dream" sequence. I believe Al wakes up in the final scene to find that, not only were the events of that episode a dream, but the entire season up to that point was a dream as well.