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If my interpretation of the lyrics is correct, I would say it has a double meaning. The first would be "Karen, my love" (or "Karen whom I love"). This is obvious from how he talks about her: 誰か話しかけてもぼくの眼は上の空 君に釘づけさ → No matter how much others (women) talk to me, my eyes are (absent-mindedly) fixated on you OH! KAREN 誰より君を愛していた → Oh ...


2

笑え is the imperative form of 笑う, so literally, it's not "I laugh at my dream" but "Laugh at this dream I had (until now)!". It doesn't make much sense for him to tell Karen to laugh at himself in this context, so I think he's saying this to no one in particular (or, to the listeners of this song). He's describing how silly and laughable ...


1

I think it's "Karen in Love", or more verbosely, "Karen who is in love (with someone else)". In a longer phrase with enough contexts, 恋するカレン could also mean "Karen who I love" (e.g., 僕が恋するカレン definitely means this). However, the title has to make sense on its own, and "Karen in love" is the only possible interpretation ...


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