Reality is a simulation /s
So the saying "There's a clear line between fantasy and reality" is false and here's why.
Let's say we have a square, left side is white, right side is black. Fantasy is left, reality is right. The "line" mentioned in the quote is the border between them. Since the focus will be on books, fantasy = fiction, reality = non-fiction. Just remember it's not limited to these definitions.
If this definition were to be accepted as true, then characters of the fiction genre would have DISTINCTLY different traits than those from the non-fiction genre (we really need italics...).
It'd be to the point where if an author showed a reader the character sheet of a fiction and non-fiction book, they'd be able to instantly tell which one belongs to which genre based on their personalities, traits, appearances, etc.
There'd be no overlap whatsoever, just like how there's no overlap between white and black on the square mentioned earlier.
But there is an overlap, so let's characterize that with a line going from a point on the white side representing "Characters" to a similar point on the black side. The color of the line is the same as the square it's in, except for the middle in which it becomes a gradient as it transitions into black.
The gradient center will be positioned on the center of the square to keep things simple (i.e. right on the border).
Gradient instead of single colored line or solid border between the two colors because there's an overlap. Preferably the line would be black on the white side and white on the other, but that'd make things too complicated for those replicating this in Paint, Gimp, Photoshop, etc.
The gradient thing is just for those who want to follow the analogy in a paint program. If you're not doing so, just think of it as blurring a segment of the border for each similar/exact points, since that's exactly what the gradient does, but it's creation involves drawing a line from Point A to Point B so ye.
If there was no overlap or similar characteristics, then there'd be no gradient. The gradient shows the transition/blurring, transition represents the presence of an overlap instead of having the line being opposite colors as the background. Basically neat blurring using paint while involving a line. (analogy still works if it's black on white and vice versa, but it gets messy real fast).
Back to the explanations... This line now represents the similarities of "Characters" in fiction and non-fiction. You can split it into however many bits you want (i.e. "personality, appearance, traits, tendencies, background, etc.) it doesn't matter.
So basically you just do this for everything you find similar between fiction and non-fiction. Settings, Politics, Plotline outline (exposition, rising action, climax, etc.), Language, Facial expressions, etc. You can nitpick the details as much as you want or just use blanket terms, it doesn't matter much.
Reason being, everything we did was just about books. Now apply this to movies, tv shows, etc. You can stretch it to sci-fi but that's iffy since sci-fi is "reasonably possible but too technologically advanced" (hmm... that's the definition for magic too... /s conspiracy /s)
Anyways, once all the lines are drawn, zoom out on your square and now that once clearly defined border is blurred from all the gradients (even more so if you went with black on white and vice versa when drawing the lines... rip eyes though.)
For those who didn't use a paint program to follow along, think of it like this: A circle zoomed in a lot is just a bunch of lines. Those lines are just a bunch of points. Each instance where the line was partially blurred is like those lines that make up a circle.
Instead of seeing a segmented blurred line after zooming out, it appears rather smooth, and maybe even heavily or mildly blurred, due to all of the similar traits of fantasy and reality.
So ye, it's not "There's a clear line between fantasy and reality" but "How far can you blur fantasy and reality before you lose touch with what is real and what is false."
For some even blurring it just a bit is too much so they went with the first quote for simplicity. For others, they could be chilling with a grey square and still be sane.
For those who don't understand why some would use the first quote for simplicity, think of it like this. Time is an illusion, every form of physics can be done w/o time, the math is just very, very intensive and thus the shorthand "time" was created to simplify it so we're not using several whiteboards for a simple gravity problem.
There's real life and mythological examples too. Most myths were born from someone misunderstanding something real or exaggerating something that happened so it'd become a fantastical tale. Go google the specifics though bc I don't feel like writing a research paper right now.
Seems like a lot right? It's only 968 words. The whole point of this is to counter those who think "because it's fantasy it doesn't need to be realistic or logical."
If we take fantasy/fiction to be the lie and reality/non-fiction to be the truth, the more truth that's mixed in with the lie, the stronger it'll be. Ex: When characters act realistically to an event, they appear to have depth instead of being flat, 2D cut outs.
Also, it is much easier to write with more restrictions because you aren't left wondering "Is that even allowed? What if it crops up later as a plot hole?" Although having a logical base is only one method to prevent these types of plot holes (more on that in the advice chaps).