Tbh, the first time I saw these scenes and them talking about fiction, I was thinking the same. Naturally, in their perspective, they wouldnt dream seeing themselves as the ones who are fictional. It's no game series, which is known for destroying the 4th wall. It's a risky thing to do, since I already saw another case where it split the fanbase in half.
The question arises in this case, if that truth comes out, how they would deal with that, because there is hardly a way to go back from that. I guess Sora optimism could relay some of that damage, but that doesnt hold true for everyone. But if it would be that way, it could give us a new perspective + of course a lot of new questions towards to some things.
First, is that fictional universe just a game or more like a simulation (like in SAO the latest seasons, if that is telling anyone anything) or something else? The former would be fitting, since Verum Rex was first shown as a game (and of course for us, too it's just a game) and is giving more creative room to explain things. A simulation on the other side would need a purpose, some kind of goal which has to fit with what we had already seen. I kinda prefer the simulation solution, since it would make the next point a bit easier to explain. The only problem I have explaining myself is, how - if KH is there just a game/simulation over there - the two sides could be intertwined, so the KH side can dream and even enter the other side. "Because magic of the real-reality" would be the only possible way I could explain it myself at the moment.
Secondly the "Masters of Masters" a name, which is a sign that he naturally stands beyond others - like an admin? There was before somewhere I don't remember (could have been here or reddit) a talk about, how the titles of each game has something to do with coding (if remembered correctly). As the admin of the simulation "Kingdom Hearts" he could give him different properties, would have an easier time to get from KH back home (since it's him who is control of designing entrances and exits) and even his aging would be possible to explain, since he could just hit (outside) the fast forward button. So basically, he is a god in the fictional world of KH (Nomura?)
Thirdly, hard connected with the second point, how do other characters originating there fit in? Mainly Luxord. How about he is someone who hacked into "Kingdom Hearts" the simulation? He called Not-Noctis commander and isn't someone who seems to suppose to be there. This assumption is firstly based on the talk between Luxord and Luxu, secondly on the assumption that "Brain" is just another character/profil/ account from whoever controls the Luxord we know, which he used first. Brain calling himself a virus would fit here. The card he gave Sora is then a sort of cheat or hack he created and is outside of the control of MoM.
And at this point, i would want to go back to the purpose, since I got an idea while writing all of this. Assuming that my speculation that MoM is the admin, and "Luxord" is someone who hacked into "Kingdom Hearts" is correct, they are standing on opposite sides. So what MoM is doing leads to fullfilling his goals, what Luxord is doing is trying to prevent this. MoM setted of atleast two wars (Foretellers and what happened in KH3) so his goal would have to do anything with military-stuff. The first war was a chaotic mess, with multiple sides fighting of against each other and there was a huge difference between a Foreteller and a normal soldier ending up with no one being alive anymore. The second one was with very few participants, but everyone was in some sort of form powerful (well... I guess the exceptions here a Kairi and Lea). My best guess is the collection of combat data and going through different scenarios.