In Nightmare on Elm Street 3 we are introduced to the concept of dream warriors. These individuals have special powers in their dreams if they are able to obtain lucidity in the dream.

In NOES 4 we are shown that Freddy takes the souls of the children he kills.

In NOES 6 we are shown that Freddy obtained the ability to haunt children's dreams from 3 dream demons. However, we are not shown that they give him the ability to manipulate the dreams in the way Freddy does. Just the ability to travel through the dreams and be "eternal"

So here is the theory. In the original NOES Freddy is not quite as powerful as he would seem to be in later films, this is probably meta, due to the budget and special effects limitations of the tiime, yet we may have a better answer.

A deleted scene from NOES the original states that Nancy had a brother and it is implied he died from Freddy in one way or another.

So here is what we know. Freddy kills and absorbs the spirits of children who have powers in their dreams, and he was doing it even before Nancy and her gang. The only ability we are shown him being granted by the dream demons is the ability to travel through dreams and be "eternal" with no mention of the crazy abilities he has in the dreams.

So, one could logically assume that many of Freddy's more outlandish abilities, such as walking on the ceiling in the first movie or shapeshifting a whole bunch in the third, are actually dream powers he stole from kids whose souls he consumed.

So there was likely a kid who could fly in his dreams and another who could be anything he wanted, and after Freddy absorbed them he uses their abilities to increase the zanyness of the kills.

This also explains the increasingly strange ways in which he is killing people, he is trying out his new powers.

This also fits in line with Alice being the Dream Master in number four, she can rival Freddy because she is absorbing the powers of her friends instead of Freddy absorbing them. So when he was defeated in number three he lost all of his powers except being able to show up in your nightmares and kill you. Thus even though he was stealing souls throughout the film, since Alice was getting the powers, he was still pretty screwed.

Alternatively, one could assert that he also uses the souls as a sort of battery for his abilities, as in maybe he keeps any powers he absorbs regardless of being killed and just needs souls to activate them. This would lead to the idea of him using up a soul completely, so unless he stayed stocked up he would lose all abilities but being able to show up in your dreams with his knife hand and good ol fashioned murder you.

Either of these also solves the conundrum of why he was even collecting souls in the first place. As he is a ghost or more accurately a dream demon, he does not need to eat, so he is not collecting souls for that. The dream demons that gave him his powers did not ask for souls in return that we are shown, so he doesn't give the souls to them. So what on Earth would he be doing with the souls unless he is harnessing them for their powers or the spiritual energy required to perform his crazy kills.