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 material body, the material universe must be accepted as real; it is absurd to claim the world is an illusion while still operating as a physical entity driven by bodily tendencies and hormones. The assertion that the world is 'mithya' or illusory arises because people project thousands of subjective meanings onto objects based on their moods and upbringing, leading to betrayal and sorrow when these projections fail.