Just thinking, is the art style only symbolic of the universe or is everything actually like that in-universe?
Depends on whether the author is breaking the fourth wall or not
They see themselves like that but that’s also their reality, they don’t know otherwise.
You occasionally get situations when the animators switch the art style every now and then, but the characters still exist in the same universe, so I wonder if the characters wonder why everything looks slightly different.
Inside Out is a great example of just that. While I couldn’t find the scene, here’s an excerpt from tvtropes.com:
*Entering the Abstract Thought Chamber in Inside Out caused the characters to turn into 2D figures with increasingly less defined shapes. *
If I remember correctly, the characters actually acknowledge the shift to less detailed artstyles.
In Star Trek SNW’s crossover episode with Lower Decks (cartoon), Boimler’s first comment when he meets the crew from SNW is that they look “very realistic”
In Peanuts, all adults would sound like “wah wah, wha wah wha wah wha wah”, to which the children would respond as if they made perfect sense.
Then again, I prefer thinking about your second possibility so I’m going with that one:-).
Hazbin Hotel and Helluva Boss have jokes about the art style. Sounds to me that the characters see each other the way we see them.