There was a problem actually with the whole thing. In the original story and also in the twisted one, the man who got robbed of his future wife had a dream. It was because of that dream that he was able to get to the flower and save her. However, Stephan was inside a dream and even if he tried to sleep, the sleep wouldn't come. They already tried, but in vain.
He wasn't a character in the dream; he was merely a dreamer. They go to the village and were surprised by how things were. It was a village with all stories and yet, no one was aware of the existence of the others. It was like they had a veil on their eyes not allowing them to see the fairies in the sky, the dragons soaring high and the sparkles all around.