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The human ability to tell apart reality from fiction is intriguing. Through a range of media, such as novels and movies, we are able to readily engage in fictional worlds and experience alternative realities. Yet even when we are completely immersed and emotionally engaged within these worlds, we have little difficulty in leaving the fictional landscapes and getting back to the day-to-day of our own world. How are we able to do this? How do we acquire our understanding of our real world? How is this similar to and different from the development of our knowledge of fictional worlds? In exploring these questions, this article makes the case for a novel multilevel explanation (called BLINCS) of our implicit understanding of the reality-fiction distinction, namely that it is derived from the fact that the worlds of fiction, relative to reality, are bounded, inference-light, curated, and sparse. KEYWORDS: fantasy, arts, narrative, knowledge, imagination, reality-fiction distinction, 'Tis strange,--but true; for truth is always strange; Stranger than fiction. --Lord Byron, Don Juan (XIV, 101) Much of our waking life is spent engaging in the realm of fiction. [...]