Note: I upvoted Mark Baker's excellent answer, but wanted to add this as well:

The issue with misleading the reader is often not confusion, but betrayal. A lot of people don't mind being confused in a story, but a betrayed reader is an angry reader. Consider The Wizard of Oz, the entire storyline of which is (at least in the famous movie version) revealed to be a dream. What makes it work is that the narrative arc has already reached completion. Even within her dreamworld, Dorothy has defeated all the foes, and achieved all her goals for her friends, so the story feels fulfilled. Imagine instead if Dorothy would have awakened right before her climatic fight with the Wicked Witch of the West. The viewer would have felt betrayed.

An extended, unreal episode in which nothing real happens, nothing is overcome and nothing is gained (or lost) is a bad idea. When it turns out to be illusionary, the reader thinks "what a waste of my time!" But that same episode could be doing good and valuable work for you instead of just taking up space. In Eternal Sunshine of the Spotless Mind, the main character spends most of the movie inside his own mind and memories. But he has a real goal, to save his memories of his ex-girlfriend; he learns something real, how much she really means to him; he grows and changes, symbolically letting her into to his most secret self; and he even gains something valuable he can take back to the real world, the secret of how to reconnect with her. So the viewer doesn't feel cheated that the majority of the narrative isn't "real."

Similarly, in the work of Japanese author Haruki Murakami, the reader and the characters (and possibly even the author himself!) are often confused as to what is real and what is not. But because the main impact of the books is psychological, the confusion and the superficial discontinuities are not off-putting (at least not to the millions of readers who made Murakami an international best-seller).

Note: I upvoted Mark Baker's excellent answer, but wanted to add this as well:

The issue with misleading the reader is often not confusion, but betrayal. A lot of people don't mind being confused in a story, but a betrayed reader is an angry reader. Consider The Wizard of Oz, the entire storyline of which is (at least in the famous movie version) revealed to be a dream. What makes it work is that the narrative arc has already reached completion. Even within her dreamworld, Dorothy has defeated all the foes, and achieved all her goals for her friends, so the story feels fulfilled. Imagine instead if Dorothy had awakened right before her climactic fight with the Wicked Witch of the West. The viewer would have felt betrayed.

An extended, unreal episode in which nothing real happens, nothing is overcome and nothing is gained (or lost) is a bad idea. When it turns out to be illusionary, the reader thinks "what a waste of my time!" But that same episode could be doing good and valuable work for you instead of just taking up space. In Eternal Sunshine of the Spotless Mind, the main character spends most of the movie inside his own mind and memories. But he has a real goal, to save his memories of his ex-girlfriend; he learns something real, how much she really means to him; he grows and changes, symbolically letting her into to his most secret self; and he even gains something valuable he can take back to the real world, the secret of how to reconnect with her. So the viewer doesn't feel cheated that the majority of the narrative isn't "real."

Similarly, in the work of Japanese author Haruki Murakami, the reader and the characters (and possibly even the author himself!) are often confused as to what is real and what is not. But because the main impact of the books is psychological, the confusion and the superficial discontinuities are not off-putting (at least not to the millions of readers who made Murakami an international best-seller).

Note: I upvoted Mark Baker's excellent answer, but wanted to add this as well:

The issue with misleading the reader is often not confusion, but betrayal. A lot of people don't mind being confused in a story, but a betrayed reader is an angry reader. Consider The Wizard of Oz, the entire storyline of which is (at least in the famous movie version) revealed to be a dream. What makes it work is that the narrative arc has already reached completion. Even within her dreamworld, Dorothy has defeated all the foes, and achieved all her goals for her friends, so the story feels fulfilled. Imagine instead if Dorothy would have awakened right before her climatic fight with the Wicked Witch of the West. The viewer would have felt betrayed.

An extended, unreal episode in which nothing real happens, nothing is overcome and nothing is gained (or lost) is a bad idea. When it turns out to be illusionary, the reader thinks "what a waste of my time!" But that same episode could be doing good and valuable work for you instead of just taking up space. In the movie Eternal Sunshine of the Spotless Mind, the main character spends most of the movie inside his own mind and memories. But he has a real goal, to save his memories of his ex-girlfriend; he learns something real, how much she really means to him; he grows and changes, symbolically letting her into to his most secret self; and he even gains something he can take back to the real world, the secret of how to reconnect with her. So the viewer doesn't feel cheated that the majority of the narrative isn't "real."

Similarly, in the work of Japanese author Haruki Murakami, the reader, the characters, and possibly even the author himself are often confused as to what is real and what is not. But because the real impact of the books is psychological, the confusion and the superficial discontinuities are not off-putting (at least not to the millions of readers who made Murakami an international best-seller).

Note: I upvoted Mark Baker's excellent answer, but wanted to add this as well:

The issue with misleading the reader is often not confusion, but betrayal. A lot of people don't mind being confused in a story, but a betrayed reader is an angry reader. Consider The Wizard of Oz, the entire storyline of which is (at least in the famous movie version) revealed to be a dream. What makes it work is that the narrative arc has already reached completion. Even within her dreamworld, Dorothy has defeated all the foes, and achieved all her goals for her friends, so the story feels fulfilled. Imagine instead if Dorothy would have awakened right before her climatic fight with the Wicked Witch of the West. The viewer would have felt betrayed.

An extended, unreal episode in which nothing real happens, nothing is overcome and nothing is gained (or lost) is a bad idea. When it turns out to be illusionary, the reader thinks "what a waste of my time!" But that same episode could be doing good and valuable work for you instead of just taking up space. In Eternal Sunshine of the Spotless Mind, the main character spends most of the movie inside his own mind and memories. But he has a real goal, to save his memories of his ex-girlfriend; he learns something real, how much she really means to him; he grows and changes, symbolically letting her into to his most secret self; and he even gains something valuable he can take back to the real world, the secret of how to reconnect with her. So the viewer doesn't feel cheated that the majority of the narrative isn't "real."

Similarly, in the work of Japanese author Haruki Murakami, the reader and the characters (and possibly even the author himself!) are often confused as to what is real and what is not. But because the main impact of the books is psychological, the confusion and the superficial discontinuities are not off-putting (at least not to the millions of readers who made Murakami an international best-seller).