According to a BBC article, “Sweet Smells Foster Sweet Dreams,” what we smell at night can affect our dream state. Presumably that would also affect the quality of our sleep.
From the article:
Professor Tim Jacob, an expert in smell and taste at Cardiff University, said: “Smell is the only sense that doesn’t ’sleep’. Information continues to reach the limbic system of the brain and that includes the hippocampus, or memory area and the amygdala, that is involved with emotional response.
“Other senses have to pass through the ‘gate’ of the thalamus, which is closed when we sleep.”