Just looking for clarification on if I am understanding this correctly and then thoughts on how it works.

So, DMG pg 248, states that "if a character is in a state, such as sleep, that lacks consciousness, you can say the character is unconscious". This would then put that condition on the character and resulting affects of the "Unconscious" condition apply. 

FOr the race of Elves, they do not require sleep but enter a trance like state "remaining semiconscious".

Using this specific wording for the elves race makes me think that the above mention in DMG applies to all other races that require "sleep" and that they are in fact "unconscious" while they sleep.

So how it works? I would think that if a sleeping character is hit, it would wake up and no longer be under the "unconscious" condition. The attacker(s) though ,would get to hit all sleeping players and then roll initiative?

For an elf, would you impose disadvantage on rolls since it is "semiconscious"?

Thanks for the feedback.

They'd be Surprised. So when the attackers started attacking, Initiative would be resolved. For the first round, all sleeping characters would not get movement or actions on their turn, or reactions. They then start as normal on their second turn (having been aroused, the noise of battle is plenty to wake you up).

Elves (and other characters with similar features, like Warforged) are awake the entire time. They wouldn't (necessarily) be Surprised, which is the advantage they get from their special rules regarding long rests.

Of course, DMs are free to rule otherwise. I had a DM who ruled that you had to pass a Constitution Check to wake up (having a lookout would grant Advantage). Really annoying when you have a low Con caster! However, the normal rules would be as above.

Fey Ancestry

You have advantage on saving throws against being charmed, and magic can’t put you to sleep.

Elves are not affected by the sleep spell at all.

The OP doesn't seem to be talking about Sleep, but an attack on the party's camp during the night when they are sleeping during a Long Rest.

Correct, not talking about the sleep spell, but actual sleep. For elve race it state they enter a semiconscious state. I feel like this would allow for a disadvantage, not the condition of unconscious, as stated in the DMG.

If you want to do it that, you may.

Note that they're removing this kind of ambiguity from the 2024 Elf, which is getting language similar to the Eladrin:

"You don’t need to sleep, and magic can’t put you to sleep. You can finish a long rest in 4 hours if you spend those hours in a trancelike meditation, during which you retain consciousness."

Given that this buff is coming later this year you may want to consider applying it now. That will remove any kind of weirdness from trying to figure out what "semiconscious" means.

Quote from PsyrenXY >>

Note that they're removing this kind of ambiguity from the 2024 Elf, which is getting language similar to the Eladrin:

"You don’t need to sleep, and magic can’t put you to sleep. You can finish a long rest in 4 hours if you spend those hours in a trancelike meditation, during which you retain consciousness."

Given that this buff is coming later this year you may want to consider applying it now. That will remove any kind of weirdness from trying to figure out what "semiconscious" means.

 While this is great advice for those adopting the new rules, for those not switching (for whatever reason) it is still something to work out.

It is things like this that raise compatibility questions with the upcoming ruleset, just how compatible are the two rule sets really going to be especially for current games? I know the 2024 rules are going to be backwards compatible and that we are supposed to be able to play both the 2014 and the 2024 characters in the same game, but just how forward compatible are the 2014 rules going to be? Which rule set will trump the other(not everyone plays adventure league type games that by nature need to follow the latest rules/errata)?

Personally I see this dividing many casual tables especially the "ad hoc/online" games where few if any players have any relationship outside of the particular game they are playing. 

Given the current economy and how casual any given game may or may not be, as much as WotC wants this not to be a new/.5 edition it has all of the earmarks of one, it is a line in the sand for many. The groups I play with are on a tight budget at the moment so my anecdotal experience is likely not representative for the community as a whole, however the line between the 2014 and 2024 rule sets is a good jumping off point for us after considerable discussion.

As always it is something to work out at each table hopefully at session 0. All of the groups I am a part of have decided to give the new rule set a hard pass for the foreseeable future for many reasons this is one of them.

I don't see the benefit for a group stubbornly clinging to ambiguity over clarity, but it's certainly their right to do so.

Quote from PsyrenXY >>

I don't see the benefit for a group stubbornly clinging to ambiguity over clarity, but it's certainly their right to do so.

 I was speaking to adopting the new rule set, not clinging to ambiguity; though I can see how you could draw that conclusion.