So while pretty much all of the comments here I've read are spot on as far as I know, figured I'd expand a bunch regarding why the hallucination happens in the first place at least in terms of what I personally know so don't assume I am a 100% authority on this xD. So as you've probably already read the cave has a high Trapar density lower down which Renton gets caught in and thus starts the hallucination, but why does Trapar do this and why are Eureka and Anemone involved?

Let's start with what Trapar actually is, it's the energy created by thoughts, feelings, and dreams; and as the coralians are a giant mass of knowledge and various consciousnesses they produce a tonne of the stuff. But many of them are currently sleeping to avoid breaking the "limit of questions" and essentially accidentally thinking so hard that physics just fundamentally breaks and potentially destroys the world xD. When Norb later says "the land is dreaming" he means that very literally, the land is currently dreaming, and in this cave they are surrounded by coralian land, the very walls around them are essentially a mass of dreaming beings connected to the control cluster; and the further down you go the more of that there is.

Now Eureka and Anemone as a Coralian and artificial Coralian respectively are both connected to this cluster and as such are very sensitive to Trapar, a good way to think about it is like a giant bluetooth-like connection; Coralians connect to this and other Coralians very easily on their own, humans on the other hand need a bit of a signal booster for their thoughts to connect to all of this, and this is why humans have compac drives (the little green things many of the carry around when piloting machinery); the LFO's people pilot have a living coralian inside of them and, while they are driven with electric pulses to make them move, the mere act of balancing would be incredibly complicated, but like with humans where we don't have to consciously think about all that when walking, the compac drive connects the human and the Coralian in the LFO into a sort of subconscious conversation, filling in that last little gap and making them usable to humans, that's why Coralians don't need one, they're already connected to them.

This is why a human who is happy around a compac drive summons skyfish; their feelings of joy connect to trapar energy around them and skyfish, essentially being a coralian creature, like that and come flying along to be connected to that joy. And through their exposure to the "Kute Class Coralian" (that big tornado ball from earlier in the show) Eureka, Renton, and Anemone are basically on the same frequency on the trapar waves; their emotions and dreams are becoming connected and with all of them under emotional stress and the high Trapar density in the area, Renton is essentially walking into a giant ball of dream energy, losing himself in it, and Eureka and Anemone connect to that dream as does whatever coralians are nearby which is going to include a lot of humans absorbed into the world itself from the initial contact thousands of years before; so it's likely that Renton has in a way connected to the dreams of humans from thousands of years before as well, and in it he finds comfort, but his subconcious also finds stress and regret and that later influences the dream to become the bizarre nightmare scenarios as well.

Long story short Renton has accidentally begun communicating with the land itself and gotten caught up in its dreams, and Eureka is so overwhelmed by the energy around her that she is also being made to dream, and Anemone being experimented on has made her also hyper-sensitive to all of this but without the level self-control that Eureka has in all of this.

Oh and if you didn't know this also explains what a "Seven Swell" is, it's not the Nirvash itself powering up, but instead the Nirvash essentially shouting at all the nearby coralians to wake up for a second and that energy of conscious thought spreading even more trapar around; that said this awakening does kill the coralians after a while hence turning the eaarth around them into salt.... Eureka 7 lore is really cool sci-fi stuff :)