Anil Seth is talking relationship b/w consciousness and body. In other words how does consciousness explore, describe, integrate and explain the outside world and subconscious controls the workings of internal organs.
This is NOT hallucination. Hallucinations r perceptions WITHOUT an external stimuli. He also kept saying “a kind of hallucination”
His statement u quoted is more literary than scientific.
I would advice u to read about schizophrenia and it’s subtypes. It’s not simple hallucinations but pathological signaling in the brain, abnormal MRI scans. The clinical symptoms schizophrenic show r against the eternal and common understanding of “good” therefore they can not be considered normal.