The council is just trying to save face with the whales, make it look like they're doing something about their failure. It's a rare and terrifying thing to lose a whole pod like that, and the council is using you as an excuse. But you know the real problem is that the squid got better, smarter. They outsmarted the merfolk, and that terrifies the council. Much easier to blame you instead.
At least the job they give you maintaining the city's ballasts has other, more personal applications; you eventually use the skills you learn to add air to the wreck Tamru enjoys, for example. And, if you're honest, it's much better than having your mind ripped away from you.
But that all happened long ago. You've even stopped having the nightmares, or at least, you've had them far less often. The terrible thing, though, is that while your memory frequently fades, the memory of that day has stayed exceptionally fresh in your mind all these years. You doubt you'll ever forget it. So instead of trying to forget, you just focus on the present: you, Tamru, and Flynn, relaxing in the undersea wreck.
You know, now that you're thinking about it, the fact that Flynn has shown up is pretty good evidence that you're not still in a squid dream. What reason could some squid have for making him up? A perceived preference for human company? A silly prank? And let's say a squid did try to invent an entire human. How could it know enough about human culture to fake it? The image of a squid trying to research humans, of putting on clothes to go incognito up on land, strikes you as so funny that you give a short laugh before settling back into a pleasant smile.
Which is nice, in retrospect. The other Everwardens don't get a chance to get the kind of distance you have from their experiences. They have to relive it on a regular basis. Flynn smiles along with you, not quite sure what the joke is. He's waiting for you to answer the question he posed what feels like forever ago: What kind of monster could threaten sperm whales?
Tell Flynn About the Giant Squid