In U.S. sports, the tradition of naming all-star teams—either to play each other in one-off contests or to recognize the best players of the year—is an old tradition. We find examples going back to "Begin Doping Out All-Star Elevens," in the [Phoenix] Arizona Republican (December 4, 1910):
Sporting writers have begun their annual selections of the great dream team—a team which could lick the world on the gridiron—the All-American eleven.
Fans of U.S. football will note that the four players thus designated in 1910 by all four sources that the sportswriter consulted (and thus consensus picks) were guys from Brown, Harvard, Penn, and Yale—four Ivy League schools. In fact, aside from one player from Navy and one from Army, every player designated as an All-American by the four sources cited was from an Ivy League school.
Instances of "dream team" begin to reappear in the Great War era, several of them in connection with a football game played in El Paso in 1916 between two military units with star players from various college teams. From "Football Oder of Today's Sport Card," in the El Paso [Texas] Morning News (November 5, 1916):
No less than seven former All-Western, All-Eastern or All-American men are playing with the Washington D. C. aggregation [the "field artillery"].
There's Hitchcock. Harvard sensational linesman, picked by Walter Camp three years in succession to hold down a position on his "dream team." Hitchcock is the star or Percy Haughton's regime at the big Crimson school, not leaving out Charley Brickley and Eddie Mahan. It was Hitchcock's great defensive work that kept the Yale line, and Wilson, from scoring three years ago, when Brickley three times booted the pill over the cross bars.
From "Vansurdam's Football Column," in the El Paso [Texas] Morning News (December 13, 1916):
A good many eastern and western selections of all-American teams have fallen under my notice in the past few days, and I think Walter Eckersoll's stand in Chicago Tribune a good one. He refuses to place Oliphant on his team and gives as his reason that Oliphant has played more than his [customary(?)] years. He does not deny that Oliphant is a wonderful player, but three tears at Purdue and one year on the freshman team gave him a decided advantage over college men when he entered the Point as a "plebe." Ollphant is a wonder but he should be barred from the "Dream" team. Chick Harley, of Ohio State; Gilroy, of Georgetown; Flanagan, of Louisiana Slate: Kerr, or Pennsylvania, all should be placed ahead of Pollock, of Brown.
And from "Army Baseball Fan Chooses All-Star Dream Team From Military Leaguers; Interesting Problem at Second Base," in the El Paso [Texas] Morning News (April 25, 1918):
By way of making comment on his selections for the Fort Bliss dream team, the Army Fan, after offering the above[list of position players], continues: ...
The phrase "dream team" undoubtedly arose from two considerations: it rhymes (an irresistible lure to sports writers then and now); and the team thus imagined had no chance (under normal circumstances) of playing together as a team in reality—at least not in the 1910–1918 era.
The Encyclopaedia Britannica article that Josh61 sites in his question actually refers to the U.S. Military Academy's team at West Point near the end of World War II:
Before the 1943 season opened, trainees were in virtually full occupancy of all the colleges, and curtailment of travel had become a necessity. Few civilian players were left from 1942 teams, but the navy department made up for this in navy-trainee colleges by granting the colleges permission to use trainees on their varsity elevens. The war department felt that army trainees had all they could do to pursue their military courses, and forbade them to take part in varsity competition. This caused many army-trainee colleges to drop football temporarily but the others carried on and produced some fabulous elevens in the war years, notably Army, the so-called "dream-team" at West Point.
This was the 1945 Army team that starred Doc Blanchard and Glenn Davis. Although misdated as being published in 1929 in Google Books search results, the quoted text was actually written after the World War II, though probably not later than 1954.
In this case, "dream team" meant "ideal but actual"—as it did when applied to the U.S. national basketball team in the 1992 Olympics—not (as in most earlier instances) "ideal but imaginary."