I think this sad song (which I love) is about the lost friendship that happened as a consequence of Stevie and Lindsey's breakup, and Lindsey's suffering afterwards. "House is full tonight"- another sold-out concert. But in the midst of all those people, there's other people that are still isolated....like Lindsey.
Beginning from the Tusk period, Lindsey started doing his own thing in the studio, spending more and more time away from the rest of the group. By the time Tango in the Night came about, they barely saw each other. Of course, this is partly due to Stevie's own isolation as well. I think Lindsey said in an interview that for that album, Stevie came in for about a week, laid down her vocals, and took off. I think the "presentation of the tragedy of his own soul" is Lindsey's music, which expresses what he's going through. She goes on to say that she understands how hard it is to remember such a painful time. The phrase itself is gleaned from chapter nine of Oscar Wilde's The Picture of Dorian Gray.
In the next verse, Stevie starts talking about how the way she deals with all the emotions stirred up by that "funny...love affair" is to turn to her music. I also think the "words with the music" could refer to how she would sing to Lindsey onstage, because she talks about "that electricity", which probably comes from performances.
Skipping down a bit, she speaks of how they don't seem to have anything in common anymore, they don't have anything to say to each other...He doesn't seem to know what she wants from him now, but he still "look[s] at [her] with those eyes." (Stevie really likes Lindsey's eyes! You see references to them all over the place...Blue Denim, No Questions Asked, and a ton of demos like Cathouse Blues, Something Exquisite, to name a few. etc.). His eyes are sad, though, now. Again, he's alone, he's suffering, and she wants to reach out to him, but they don't even talk to each other anymore. He's become too distant, withdrawing into himself, becoming more and more unhappy.
This last part puzzles me, but here's my guess: the letter in the mail thing didn't really happen, it stands for something. The letter might symbolize the fact that she keeps getting called upon to perform with Lindsey, to "see him tomorrow night," and it gets too difficult - she feels "I can't live like this." Perhaps sometimes they're friendly at first - but it never lasts. Sooner or later, "something's going wrong." They start fighting - it becomes a nightmare. "Just a bad dream, baby," however, seems to be words that comfort, that the suffering isn't real, just a bad dream. Yet it is very real. Perhaps the phrase represents her desire to help and comfort Lindsey, to ease the pain. The tragedy is that what brought them so much joy, their closeness and love, has now brought them misery, driven them apart...and inspired hate and suffering, especially for Lindsey. His soul has been damaged. Such a sad song!
Along with WebMistress, I also believe that this song is about Stevie and Lindsay, and their break up. It says, House is full tonight People are everywhere I also think this is referring to a concert full of people. While these people are watching them, they are on stage singing/playing but at the same time as trying to be in a band, they are going through a lot of pain.
The lines, Not again to just get together. Not again to prove that we can still be there could show that she does not want to just get back together again, leaving behind all the reasons why they broke up in the first place.
In the lines, Well, it's hard to look into the tragedy of one's own soul, because a very great part of you really knows how bad it was I think Stevie is trying to show Lindsay how, deep down he knows why they broke up, he knows how hard it was when they were together. And therefore the tragedy is their relationship and how it ended.
In contradiction to the lines Not again to just get together. Not again to prove that we can still be there Stevie says I'll admit that I was right not to go. This perhaps shows that she is feeling regret and is confused about whether it was right or not, to leave the relationship.
Again she talks about the concerts, That electricity... Well, the house is full tonight. I think she is saying that when shes on stage, there is such tension between her and Lindsay, that its like electricity flowing through her.
She then goes on to talk about how they, don't have so very much in common and how he does not have really very much to say. She talks about how they dont speak anymore and that in fact weeks go by, but they dont speak. When she says You just look at me with those eyes it seems to me that she is showing she still loves and cares for him and its painful.
Then she talks about something coming in the mail and saying that she will see him tomorrow night. To me this seems like he is asking her back, and she is in shock. However, it is a very difficult part of the song to decipher. She doesnt know what to do and she cant do anything right, but ok, shell see you tomorrow night anyway. Then she wakes up, and realises it was all just a nightmare It started to be a fight Just a bad dream, baby... It sounds like in her dream her and Lindsey ended up fighting, but she reassures herself that it was only a nightmare.
However for that last part, I can also see what the WebMistress means when she says about the letter in the mail calling her to another concert, where she will see Lindsey once again and feel that electricity, where the house is full.