The ignorant thinks that, the self is the waking entity (ego) and perceives the world without being aware of the fact that, the three states are mere illusory experience created out of consciousness.

The ignorant thinks that, the self is the waking entity (ego) and perceives the world without being aware of the fact that, the three states are mere illusory experience created out of consciousness. Thus they try to judge the truth on the false entity (waking entity or ego) within the false experience (waking). Until one makes sure of the true self, it is erroneous to judge and conclude the ultimate truth on mere intellectualism.  Thus one has to make sure of the fact that,    the self is neither the waking entity nor self is  the dream entity but the self is formless soul or consciousness, which witnesses the coming and going of the three states without the physical apparatus.

A Gnani has firm conviction that, the “Self” is definitely neither the waking entity nor the dream entity because the waking and dream both are illusory.  The true self is formless soul or   consciousness. Consciousness is    the existence and knowledge.

Illusion’s "concealing power" merely means that when one looks at an ice block he thinks only of the ice block. But a Gnani will think of the substance of the ice block too.   That is a wise man has the knowledge of the substance plus of the ice block. Similarly a Gnani has the knowledge of the universe and its formless substance also. The consciousness is concealed because of ignorance. As a man one is not aware of the fact that, his body, ego and his experience of the world are mere mirage created out of consciousness. When one becomes aware of the fact that, the universe is mirage then there is no body,  no ego and no world than there is only the formless soul or   consciousness, which is the innermost self.  

One has to get firm conviction that, the Self is definitely not the waking entity because the waking experience itself is an illusion. The self is the formless substance and the witness of the three states.  The formless substance and witness is the soul or consciousness. The soul or consciousness is the innermost self.  The innermost self is without change, without any form, without any blemish and without any decay, without   disease, beyond all comprehension, beyond any change and consciousness is all pervading.

Soul or innermost self is without properties and without any activity; self is permanent, forever free and imperishable.

The soul or consciousness is the subject. All the three states are an object to the formless subject.  And the three states are but transient experience.  The witness of the three states is soul or consciousness, the innermost self.  The Formless Witness, is unaffected by the individual experiences happening within the waking or dream because it can never be lost or lose anything in itself. Thus noting is lost or gained because everything is consciousness.  Therefore Gnani sees only consciousness in everything and everywhere in all the three states.  Thus for Gnani there is no second thing exists other than consciousness. 

Knowing the three states are one in essence and that essence is  consciousness, he no longer considers them  as an object such distinction exists only in ignorance. The ignorant man imagines he is related to objects, imagines there is causal  relation with them and then imagines his sufferings because he stuck with the reality of practical life within the practical world.

World is both real and unreal. It is real because it is a manifestation of consciousness, but is unreal, in the sense, that it is not absolute and eternal like consciousness itself.

Peoples approach is more practical, and they stuck with the reality of the world, they take it as real. That is why all the confusion.