The leg-gnawing giant, whose vertical eye was filled with blood-red threads, wasn't actually real. He was, in essence, a strong emotion produced by a particular living creature.
The emotions that originated from having a deep impression had entered the subconscious. It spread from one's island of consciousness to the surrounding illusory "sea," before slowly settling and forming a mark. It wasn't possible for all of its emotions and consciousness to ultimately settle down as the foundation. Most of them would be washed away with time by the "seawater." Only extremely intense and repeated experiences would remain.
And once it formed a mark, it would be a drop of water in the sea of collective subconscious which would then affect living creatures of the same species in its surroundings. It would be a shared, ancient "memory" carved into one's pulse.
