A Simple Explanation

As a rule in the setting, Dream Realm ability users kept their true bodies hidden in the back. What they showed before others was usually merely the perception and thoughts they gave people.

They could also drive certain consciousness entities to act in their stead, which was why Daoist Gray could withdraw unscathed.

There had originally been a section earlier in the plot meant for the Nine-tailed Fox, with a detailed introduction to these abilities. Later, I didn't write it and used the concept directly, which led some people to ask why Daoist Gray was fine and say it was too unreasonable.