Thank you so much to everyone for the detailed replies! I agree as well, I don't like subscribing to the whole dream world thing. How does Link keep the mirror shield then? lol. I love the mask salesman theory that's really cool! Link IS saving the world agreed, cause then like how do they explain the Giants, they are totally a real thing in the world of Termina.
Honestly, after just finishing playing the 3DS version (I played n64 years ago) I really like the concept of the Lost Woods being a portal dimension area to other worlds. The game starts with Link and Skull Kid there and ends with Link going back. In one of the final scenes when it transitions from Termina to Lost woods there is a shot of the camera moving forward through the woods and then a clear shot after camera stops moving of Link back in the Lost Woods on Epona. I LOVE this theory, maybe seeing as the goddesses view Link as the hero, they knew that the world of Termina needed saving and was somehow chosen to be a hero for Termina? Maybe the Lost Woods is a magical area in Hyrule that potentially serves as a portal to other dimensions and worlds. We saw similar portals in ALTTP where there were portal areas in the lost woods there too. Just spit ballin' but yeah thanks a bunch guys for the content here!
Also, massive shoutout to the ending sequence on the 3DS, when I say it was Spectacular, I thought it was BREATHTAKING. I almost got emotional actually after beating it. And then they transitioned from the original end Termina sequence from the original game to the end credits including all the people that worked on the 3D version. It went into an epic orchestral Clock Town into a final Legend of Zelda Theme orchestral arrangement as the grand finale and it honestly sounded so incredible on the 3DS XL. SOO EPIC! Omg, seriously one of the best grand finishes in ANY Zelda Title I've ever experienced. I had to go back to the moon to defeat MM one more time (this time with Fierce Deity, lol) to experience the end sequence again, I thought it was that good for reals.