As a simple thought experiment, imagine what encountering something completely recognizable but otherwise impossible would do.
Lets say you walked into the next room, and standing on a piece of furniture was a little man, literally 18 inches tall, at most, in green clothing, clambering and climbing about. I don’t mean like what you’d imagine from a special effect or a cartoon, but a real tiny thing that looked, moved, and acted like an impossibly miniature humanlike creature, the hair wouldn’t be shrunk by proportion, there’d be fewer folicles overall, but more densely packed. You can see the faint veins under the skin, the hairs, the pores, you can smell it, it leaves scuffs, it makes sounds appropriate for its size… and when it sees you, it just looks at you, tilts its head, smiles mischieviously, and darts under the couch, vanishing. The only thing you find is a gold coin, which is real, solid, and rare, having not seen circulation in centuries.
You’ve had, in this scenario, an encounter with a leprechaun. It’s a relatively understandable phenomenon. There’s plenty of tolklore to prepare you for it, the creature is rationally built, has antatomy that makes sense, is similar to yourself enough to be very familiar. It wasn’t even hostile.
Is your life ever going to be the same?
In addition to questioning whether you actually saw what you saw, you now have to wonder why you were visited. Wil it come back? If it does can it hurt you? If it can, can you stop it? Where did it come from? Has it always just been there, out of sight? Is it here right now?
And those are just surface level questions. Now, fundamentally, the rules of reality have to be reassessed. If such a thing can exist, what does that say about our understanding of biology and evolution? Moreover, there are suddenly theological implications here, none of which are likely to be cleanly or comfortingly answered in their entirety.
You’ve just witnessed sone of the single most important encounters in human history, and anyone who hears you talk about it is going to think you’ve lost your mind. The terror and sense of lonliness from that is going to be soul crushing.
Now, replace the leprechaun with something that looks like a deep dream animation brought to life and appears to be both impossible to adequately destroy and possessed of absolute malevolence. Getting attacked by a normal everyday animal can be traumatizing, surviving an encounter with a bloodsucking octopus tree that screams in an alien language from mutiple slathering maws is certrainly beyond the ken of 1930s psychiatric medicine.