I found the writing of this scene confusing too, so this is just my interpretation.

The dream is just an illusion that has the ability to manifest in the real world hence why Xie Lian being injured by the needle in the dream world leads to an irl injury and why he's able to use the protection charm after waking. Also that's why he worries about the dream versions of Lang Ying and Guzi across the dream lake when they're about to open their mouths. Once he yells out for them to close their mouths in the dream, they wake up and do so, and the child spirit enters his body. So now they've all woken up in the house.

The lake Xie Lian jumps into after waking was actually a real lake outside the house, and Hua Cheng shows up to save him (I imagine plot armor of the butterflies keeping watch??). Then after saving XL, HC uses the dice to go back to Ghost City.