Excerpted from The Notion Club Papers pages 188-9 - part of the volume Sauron Defeated, edited by Christopher Tolkien, 1992. The speaker is Michael Ramer - who often apparently serves as Tolkien's 'mouthpiece' in this novel-fragment
...For a mind, rest is not oblivion, which is impossible for it. The nearest it can get to that is passivity: the mind can be very nearly passive, contemplating something worthy of it, or which seems worthy...
If it has by nature, or has acquired, some dominant interest - like history, or languages, or mathematics - it may at times work away at such things, while the old body is recuperating. It can then construct dreams, by no means always pictorial. It can plan and calculate.
My mind... makes up stories, composes verse, or designs pictures out of what it has got already, when for some reason it hasn't at the moment a thirst to acquire more.
I fancy that all waking art draws a good deal on this sort of activity.
[Note - other continuations of this passage in different drafts]:
A: I fancy that all waking art draws a good deal on this sort of activity - the best bits and passages, especially, those that seem to come suddenly when you're in the heat of making. They sometimes fit with an odd perfection; and sometimes, [although] good in themselves, they don't really fit.
B: I fancy that all waking art draws a good deal on this sort of activity. Those scenes that come up complete and fixed, that I spoke of before, for instance. I think that those really good passages that arise as it were, suddenly when you're abstracted, in the heat of making, are often long-prepared impromptus.
I believe that Tolkien was here describing how his 'best bits and passages' (whether of stories, verse or pictures) - which often occurred to him suddenly, seemingly unplanned and unprepared ('impromptu) and 'in the heat of making' - had actually already been constructed by the dreaming mind during sleep; which had been 'working away' at his dominant interests.
So the best bits and passages of Tolkien's works were (it seems) pre-prepared and ready for use ('complete and fixed'), and they would either fit directly into the larger work (with an 'odd perfection'); or else these units (despite being 'good in themselves') would need subsequently (and probably reluctantly) to be deleted from the larger work; because on consideration they didn't really fit.