What if it's in the imagination of a chronically ill child in a hospital? What if it's set in a prediction branch of a badly-programmed ASI system attempting to acausally bargain with non-existent entities[1], inadvertently creating and killing trillions of human-like entities [2]? It's probably not worth speculating about, I don't see much of an indication this is well thought through by the creators of the show.
[0]: AMV - Phantom Of The Opera
https://youtu.be/6wsR6fBudQE (kind of like this, but even less of a real world)
[1]: Multiverse-wide Cooperation via Correlated Decision Making
https://archive.is/x2xHM
[2]: Against the Culture
https://archive.is/gv0lG "The Minds run incredibly detailed simulations of terrible situations; there’s no attention to whether this is morally risky."