In the beginning Lolo only feels sadness (mainly bc she reminds her of the times where she didn't have her firends) and a slight fear towards Nightmare. And Nightmare completely despises her but this hatred is very much implanted in her, she doesn’t have a reason to hate Lolo. Nightmare chases Lolo and Klonoa for ‘revenge’ since Nightmare is left to die in the dream but manages to get out.

After Nightmare is defeated and left on her own she realizes she never had much of a reason to do anything of what she did. Nightmare ends up coming back to Lolo bc of the connection she unconsciously feels with her. Initially Nightmare goes back to old habits and simply continues to scare and put down Lolo but she slowly stops once Lolo starts to defend herself (Night realizes Lolo is not the same person the nightmare made her out to be).

Eventually they become close solely bc Nightmare keeps sticking around Lolo. Lolo is able to realize Nightmare doesn’t really have any ill will towards her bc of this… They talk often about Nightmare’s identity (Lolo starts these convos) and about Lolo’s studies (Nightmare starts these). Lolo likes Nightmare's bluntness and how naive she can be (like her) and Nightmare likes how kind Lolo is to everyone (but especially to her).

Nightmare feels like she has to make up for her past behaviour towards Lolo constantly and tries to overcompensate constantly. Lolo simply wants to help Nightmare find out who she is since she partially feels responsible for her being a copy of Klonoa. AKA they help eachother bc they feel they HAVE to... they dont hate eachother's company tho they are actually friends the basis of it is just not the best

The connection they both feel towards each other bc of the dream plays a big part in why Lolo stuck with Nightmare.

In the end they talk things out to develop a healthier relationship. but in like a good few couple of years... and they probably have some sort of fight or long period apart that makes them think about their relationship.