I realize that it almost seems the "waking world" still takes place in the Klonoa worlds of the games; in DTP, Klonoa wakes up from a dream that seems to take place in the world he wakes up to. And as mentioned Jilius and Garlen had the dreams where their respective games took place. It's still really hard to say as the team seemed to have changed how dreams work across the timeline of the series. But I think for every game except for Heroes, they are all established to be themselves dreams.
The first two mainline games are Klonoa's dreams, meaning, the player's. Cause Klonoa was originally (and in a way still is) meant to be the player's avatar, the Link to the dream world, if you will, except that he has his own personality to an extent, much like Kris from Deltarune. It's like when you dream in real life and you see yourself as a completely different person with a wholly new life and history, and you half realize it's just a dream (or just a game), but you are also invested in the game and identify as the main character (You would refer to Klonoa as "I" or "Me", like if you said "So
I just have to jump up this ledge with a Moo..." or, "Noooo Huepow betrayed
me!!" The main Klonoa games were originally meant to be metaphors for dreams, drawing parallels between games and dreams.
Moonlight Museum is interesting, cause according to this interview
https://klonoa-at-blog.tumblr.com/post/694117109335293952/from-klonoa-moonlight-museum-official , this game also stars you as Klonoa, but it flatout says the story is different, with the rationale that as long as the fantastical atmosphere is present it's still a Klonoa game. I think this mindset carried over to the rest of the series. It seems that continuity became a much less worried-about part of it, which explains a lot. It's less about the rules and mechanics and more about the feeling you get when playing it, which is in line with dreams themselves. Dreams are unpredictable and usually inconsistent with real life, although there can be continuity and it makes it all the more special, at least for me.
As for the remakes of DTP and LV, it's most likely the same case, but this time, in both remakes they start to use the avatar part much more literally, making Klonoa more and more of a blank slate and not his own character with agency and goals, or even unique feelings on a situation. Which is funny cause the reason the story started becoming so inconsistant lore-wise was because Arai wanted to portray a magical feeling. But I feel that LV failed to do that as well as it could have. usually in games like JRPG's the protagonist is a blank slate so you can better insert yourself and your own reactions to the game's events, but Klonoa was already established to have his own agency, even when he was still an avatar in the first game. And in the game right before the Wiimake, being Heroes, he's seen to have the most bombastic and lively personality and sense of agency in the entire series, so to go back to DTP with a barely conscious furry in Kingdom Hearts drab who lets his pet Snow Globe do all the talking and thinking is extremely frustrating.
I suppose they learned their mistake and reverted PRS' take on DTP back to the original script, where Klonoa reacted more and asked questions about the situation.
But yeah, the fact that Jilius and Garlen seemed to have the dreams of that game and not Klonoa, tells me that Klonoa travels to other people's dreams and not just his own. But of course there's also dreams within dreams ala DTP's opening. I'm just wondering how Heroes fits into all this. Cause they do fall into nightmares in the game, and dreams and nightmares in this game and the mainline series are basically the forces of good and evil made tangible power that also happens to shape the world.
Oh yeah which brings me back to how the entire Klonoa universe is formed already: Phantomile. Phantomile is apparently created by the dreams of the world, a culmination of all dreams apparently. But does that mean the dreams of everyone in the real world, or just in the Klonoa games? Like, do the dreams of other characters in other games form Phantomile?
The concept of people's dreams forming a world reminds me much of LittleBigPlanet, but that game seems to convey the idea of the collective creativity of every human on earth much more clearly. Klonoa's worlds always seem to have more of a concrete theme to them.
Except for LV and Heroes, and arguably the other two GBA games but they still follow the kingdom theme. LV and Heroes have inconsistent theming with the kingdoms present. They're all over the place, one day you're in a theme park, the other you're in a civil war zone, then an LSD trip. And Heroes mostly has a bunch of random locales from the previous games. So those fit more into the chaotic dream collective description, but it doesn't feel purposeful... Just feels like an extension of how they're following the "fantastical atmosphere" philosophy from earlier.
So what is Phantomile? I think it could very well just be Klonoa's dreams. Not the player's, but Klonoa's. memories from past games are jumbled up and recontexualized into something completely different. Histories with past allies and foes are changed, history is rewritten, as if they never happened. Old locations come back. It's not crazy enough to be the dreams of all people in the universe, it feels like the dreams of one person. And people are just welcome to explore it as guests.
If you compare any given video game to a dream, or a dream to a video game, you could see how each has its own vastly different sets of logic, lore, and history. But some may carry certain elements over from past dreams (sequels), but might not do so one-to-one. Each of Klonoa's worlds mostly fit in the same aesthetic, so you could say they're all part of the same universe, or the same mind even...
If you really had to give a concrete throughline for the entire series... it is most likely an exploration of Klonoa's psyche. Basically his grieving process, as well as his hopes for his real life. (I'm totally taking this idea from a fanfiction/popular theory about the game lol). But, I doubt even the staff has a good idea as to how you make everything make sense. It's more likely they play it by ear and don't have an official timeline.
But who knows, maybe after Phantasy Reverie they changed that?
And one more important note... After the movie was cancelled, this image was posted on twitter, which seems to parallel the initial teaser poster for the movie.
https://klonoa-at-blog.tumblr.com/post/628533442319122432/art-by-arigamegamix-hitoshi-ariga-for-klonoa And it seems to be Klonoa looking over at a kingdom that looks vaguely like the kingdom from one of the first iterations of the Klonoa series concept
https://klonoa-at-blog.tumblr.com/post/671924608638861312/from-a-2009-interview-with-hideo-yoshizawa-aboutI feel like the movie was going to be an attempt to put all the pieces together in one whole. I feel like they're still going that route. PRS compiles both the first games, which are the only ones that have a concrete timeline so far.
Okay I said a lot here and not a lot of it is very concrete I know, I'm tired right now but I really REEALLY wanted to get all these ideas out there, so here they are lol, I hope you enjoy them

TLDR: I'm gonna go with the popular theory and say they're Klonoa's dreams, but then there's a whole bunch of other stuff related to it too