Acharya Prashant explains that knowledge is often an illusion because we imagine it to be absolute truth, whereas it is merely a temporary state until falsified. He cites historical examples like Copernicus and Galileo to illustrate how people resist new information that contradicts their established beliefs. He argues that humans are often filled with 'dead knowledge' and prejudices that act as filters, causing us to ignore or reject information that does not align with our existing context. This bias is so strong that individuals typically perceive less than five percent of the sensory inputs available to them, effectively living in private worlds disconnected from reality.