When bacteria eat the leftovers on your teeth and in your mouth, it creates a yucky smell. Your saliva usually takes care of some of that bacteria, but when you are sleeping you produce less saliva.
When you are awake, your saliva constantly washes smelly bacteria from your mouth. When you sleep, you produce less saliva, so your mouth dries out somewhat, and smelly bacteria grows, and your breath smells more.
To reduce it, don’t eat or drink sugary or fatty drinks after dinner, and brush and floss before bed. You’ll reduce both the amount of bacteria and the amount of stuff for them to feed on overnight.