When one realizes the fact that, the self is not physical but self is the formless soul or consciousness , than naturally the body and universe becomes illusion.

There are certain principles which are common to all orthodox Hindu thought, that are taken for granted.  Orthodox assumes that the doctrine of karma is valid because they accept the experience of birth, life, death and the world as reality.

Kabir views humanity as being caught up in illusion, searching for Ultimate Reality in all the wrong places, always seeking It outside of ourselves in various rituals, temples, forests and mountaintops, not realizing That for which we seek is already hidden within us. 

 Without the self-knowledge it is impossible to cross the illusory ocean of the pain and pleasure.  There no vessel to ferry man across the ocean of illusory form, time and space except Gnana. 

What is Gnana? Gnana means the full and firm realization of truth – a realization beyond all doubts, change and contradiction.

Neither the control of breath, or regulating the breath, nor the performance of selfless service, nor by devotion to gods and gurus, not the performance of penance, nor pilgrimaging, nor by yoga nor by scriptural mastery, the ignorance will not vanish. But only   through Self-Knowledge or Brahma Gnana or Atma Gnana the ignorance can be eradicated.  The three states are state of ignorance. All the three states are falsehood. The formless substance and and eternal.  witness of the three states is real

Sri Sankara, in Bhaja Govindam says: - [Jnana Viheena Sarva Mathena Bajathi na Muktim janma Shatena] - one without knowledge does not obtain liberation even in a hundred births, no matter which religious faith he follows.

The mind is in the form of Universe. Universe appears as waking or dream. Waking as it presents itself is unreal, same way as the dream. Thus waking or dream is simply illusion created out of consciousness.  To the man within the universe it is not an illusion because he has the conviction that he is an individual separate form the universe and he is born in this universe and universe existed prior to him.  Until this conviction is there he is bound to believe the birth, life, death and universe as reality.  Only in deeper self-search he becomes aware of the fact that, the mind is not within the body but body and the universe are within the mind.   And he also becomes aware of the fact that mind itself is the whole universe ,which appears as waking or dream and disappears as deep sleep.

To think once own body and his experience of the world is an illusion is difficult matter, unless one realizes the self is not physical but it is formless soul it is difficult to have glimpse of truth.

When one realizes the fact that, the self is not physical but self is the  formless soul or consciousness ,  than naturally the body and universe becomes illusion.