Acharya Prashant clarifies the concept of the world being an illusion, explaining that it does not mean the physical world is non-existent. Instead, it signifies that human perception is heavily conditioned, causing people to see things as they are not. He argues that as long as one identifies with the body, the material universe must be accepted as real; to claim otherwise while still functioning as a body is an absurdity. The assertion that the world is 'mithya' (illusory) stems from the fact that humans rarely see objects as they are, but rather through layers of personal mood, upbringing, and stereotypes that lead to deception and sorrow.