(SPOILER)Yes, and it's one of the most misunderstood aspects of the game. Calling it 'Dream' Zanarkand makes one of think of dreams in real life, insubstantial products of our minds. But in Spira, Pyreflies can give substance to the dreams of the Fayth.

Tidus quite reasonably assumes that because he encounters the ruins of the real Zanarkand (which has been that way for 1000 years) that he traveled in time. The player is left to assume that as well for most of the game.

Since both Zanarkand and DZ coexist in Spira at the same time they must logically exist in different places.