In other words... What does that mean?

I see, so in other words...

You're saying that right now, we are inside the DS that Nitori brought...

Probably.

Although I don't understand why since Reimu just started the game...

But the scenery in front of us right now is from when I was playing "Yukkuri Crossing" outside, ze.

The first player gets to be the Mayor...

While the second or more players become the villagers. That's the rule of the game.

It's certainly seems like our situation right now.