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  While it is a resting place for our puppies, I was told that where they rest is significant in dog language.  
 The closer they get to your head/shoulder is a sign in their minds that they are your equal.  In dog language the leader of the pack  is in a "higher" or "elevated"  position.  So when your puppy sleeps on your pillow or rests on your shoulder, it is competing with you for leader (maybe not competing, if you are ok with allowing your sweetie to be the leader) or is letting you know that he/she feels they are equal in stature in your relationship.
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