"Dragon tales and the 'water is wide'" Dragon Tales was a popular children's cartoon around the time the song was written. "The water is wide" is an English folk song, presumably one the songwriter used to sing with/to his son.

"Pirate's sail and lost boys fly" is a reference to Peter Pan

"Fish bite moonbeams every night" this is something fish in a lake or pond will do at night when the moonlight dancing on the water appears to them to be insects landing on the surface.

"Godspeed, little man" means have a safe journey, son.

"Sweet dreams, little man" self-explanatory.

"Oh my love will fly to you each night on angels wings" means that though I cannot be with you physically I hope that you know that I love you/feel my love.

"The rocket racer's all tuckered out
Superman's in pajamas on the couch" is a reference to it being bed time for everyone, even super heroes (rocket racer and superman are comic superheroes).

"Goodnight moon, will find the mouse" references to classic children's bedtime stories.

"God bless mommy and match box cars
God bless dad and thanks for the stars" is a prayer a child might say (thanking god for things important to him, i.e. toy cars, stars and his parents).

"God hears 'Amen,' wherever we are" is an admonition to the child that distance cannot separate us. God hears us everywhere.