Chuang Chou, butterfly and different types of simulation

When I played Dreamfall: chapters, one of the setting is that in the future, almost everyone get addicted to a so-called dream machine which looks like a mask that lets you dream. On the streets you can see people siting there and daydream and not be able to control themselves to leave the dream world. The company that manufactures dream machines uses them to steal people's memory and manipulate the government. The "dream machine" is vr to me (not that addictive but could be in the future, but in a good way.)

I sometimes feel that with the advance of technology, in the future it would be hard to differentiate "real" and "virtual". I'm not talking about vr, technology might take a different form, but the general concept. I think it is very possible that computers will be able to simulate touch, sights, hearing, so on and so forth, that the sensations will be real enough to that of "real" life. Say you're connected to a simulator of going to school and go back to sleep after you fall asleep by your evil roommate, and disconnect before you wake up, how do you know that you actually didn't go to school but slept for 1 day and a night? How do you know while you're in school that you're in a simulation? This thinking has been brought up multiple times in history and in movies as well, recent examples being "brain in a jar", zoo hypothesis, and so on. Actually, dating back to 2300 years ago, there was a Chinese philosopher called Chuang Chou. He recorded: "One time, I, Chuang Chou, dreamt I was a butterfly, fluttering hither and thither, to all intents and purposes a butterfly. I was conscious only of my happiness as a butterfly, unaware that I was Chou. Soon I awaked, and there I was, veritably myself again. Now I do not know whether I was then a man dreaming I was a butterfly, or whether I am now a butterfly, dreaming I am a man. Between a man and a butterfly there is necessarily a distinction. The transition is called the transformation of material things." (source: https://en.wikiquote.org/wiki/Zhuangzi)

There're different type of simulations. The first one being the one I discussed in the previous paragraph, that it "feels" the same. As discussed a bit in Inception, there should be ways to find out if you're in the simulation or not. It could be a "totem" that will not change in the simulation, could be think-back method (thinking about the process you come here to find the inconsistency), could also be disparity that due to the bug of simulation, whether it's "mechanics, aesthetics, story or technology". (You can try to talk to one character and see if he always repeats the same thing, etc.) But the flaw of this simulation is the world is non-connected and inconsistent. The second type of simulation could be simulation web, or a MMORPG---that you pick up where you left last time and there's an overall achievement system. It's harder to realize you're in simulation because you will not be able to use the think-back method, but you can try to find the disparity. But does that matter whether you're in the simulation or not if the simulation is as real as real life? I don't think people should criticizing simulations or games as they're "not reality", that people're avoiding reality when they're playing games, because reality is a controversial concept itself.