First, this is not really science so much as it is science-themed philosophy or maybe “religion”. That being said, to make it work:

• We don’t have anyway of knowing the true scale and “resolution” of a hypothetical higher order universe. We think the universe is big, we think the speed of light is supremely fast, and we think the subatomic particles we measure are impossibly fine grained. However if we had a hypothetical simulation that is self-aware but not aware of our universe, they might conclude some slower limitation in the physics engine is supremely fast, that triangles are the fundamental atoms of the universe, and pixels of textures represent their equivalent of subatomic particles. They might try to imagine making a simulation engine out of in-simulation assets and conclude it’s obviously impossible, without ever being able to even conceive of volumetric reality with atoms and subatomic particles and computation devices way beyond anything that could be constructed out of in-engine assets. Think about people who make ‘computers’ out of in-game mechanics and how absurdly ‘large’ and underpowered they are compared to what we would be used to. Our universe could be “minecraft” level as far as a hypothetical simulator is concerned, we have no possible frame of reference to gauge some absolute complexity of our perceived reality.

• We don’t know how much we “think” is modeled is actually real. Imagine you are in the Half Life game as a miraculously self-aware NPC. You’d think about the terribly impossibly complex physics of the experiment gone wrong. Those of us outside of that know it’s just a superficial model consisting of props to serve the narrative, but every piece of gadget that the NPC would see “in-universe” is in service of saying “yes, this thing is a real deep phenomenon, not merely some superficial flashes”. For all you know, nothing is modeled behind you at anything but the most vague way, every microscope view just a texture, every piece of knowledge about the particle colliders is just “lore”. All those experiments showing impossibly complex phenomenon could just be props in service of a narrative, if the point of the simulation has nothing to do with “physics” but just needs some placeholder physics to be plausible. The simulation could be five seconds old with all your memories prior to that just baked “backstory”.

• We have no way of perceiving “true” time, it may take a day of “outside” time to execute a second of our time. We don’t even have “true” time within our observable universe, thanks to relativity being all weird.

• Speaking of weird, this theory has appeal because of all the “weird” stuff in physics. Relativitiy and quantum physics are so weird. When you get to subatomic resolution, things start kind of getting “glitchy”, we have this hard coded limit to relative velocity and time and length get messed up as you approach that limit. These sound like the sort of thing we’d end up if we tried simulating, so it is tempting to imagine a higher order universe with less “weirdness”.