The movie is set in a virtual simulation.
The whole movie was set in a VR simulation. The family driving to the mall to find Nonoko who is missing, while the car's radio plays a song about a lost kitty? It was entirely because of "scenery taking" (when scenery is taken and something happens to match very well). Shige asking why her friend (which she visited) is in the hospital in the first place, and the friend starts to cry, unable to keep herself together any longer. Though nothing's outright said, it was incredibly clear that she was dying? Censors. Yes, censors existed in that simulation.The family was brainwashed to live in the "world" except for Shige, who managed to survive it albeit with a third of her memory, leading her to get her Cool Old Lady personality with her remaining the sharp-tongued personality (looking at you people, HBO and your streaming service HBO Max).
