He was in reference to the human sphere of existance. The "world" includes all the stars, planets, etc. All of human understanding and belief as well. A spiritual being can see this world as the dreamers see it, but are free to wake as it pleases them. Those of the world are unable to wake from the dream. They're not even aware that they're asleep within it. x
In Christian parlance, "this world" has roughly the same meaning that "Babylon" has in hip circles. It's a methaphor for a system based on materialism, consumerism, status and power. "Not of this world" expresses rejection of this system in favor of one based on spiritual values. Both can coexist on the same planet, or even in the same physical space.
