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— In the latter half of The World That Never Was, despite returning to the real world, why do Sora and co. stay in that form and why do Dream Eaters appear etc?
Nomura: Sora and co.’s form is due to Yen Sid’s magic, so the way it works is that they can’t turn back until they return to the Mysterious Tower, and Dream Eaters were appearing because Sora was still asleep. Also, ever since Organization XIII was defeated in KH2, the The World That Never Was’ existence as a world has become uncertain. In the first place, the worlds in the rift between darkness and light have different rules than other worlds. The Mysterious Tower isn’t always standing in a fixed place. Traverse Town too reforms its shape every time, which is why the version that appears in this title is clearly different than the version in KH1.
As explained in the DDD Ultimania in 2012:
Thank you for that! That helps me understand it better now.
Sora and Riku are in their younger bodies simply because of Yen Sid's magic to sort of help with the whole starting over from the beginning for the Mark of Mastery thing. The spell wears off when they get back to Yen Sid's tower. It has nothing to do with them being in the realm of sleep.