So even though the character has the body of our dear insane friend Dust Sans that does not make the character insane. Since the character is from the "Creator's World" and that they know of Phantom Papyrus that allows them to see Phantom Papyrus even though he is technically not real. And Phantom Papyrus is aware of the "Creator's World" for the sake of plot. I will make a chapter that will go in depth about Phantom Papyrus. But I hope this helps.