Dreams are basically simulations of our lives that we run, sometimes with different physical constants, resulting in different worldly behaviours. Fever dreams (not necessarily during a fever) are when we are sweeping over a range of constants, so behaviour keeps on changing.
I mean, the real world does actually exist. But we only experience a simulation of it, created by our brain based on data from our senses. So yes, we live in a simulation, but it does correspond to reality behind it.
we perceive a VERY small percentage of the “real” world