There is a popular fan theory that suggests that the monsters that exist within Courage the Cowardly Dog may not actually exist. Instead, the in-universe explanation is that all of these monsters are merely fantastical manifestations of Courage’s own mind. After all, Courage has always been portrayed on the show as being easily scared whether there is a monster present or not.
This theory suggests that his natural feelings of fear have given birth to monsters based on how he perceives the world. His general lack of understanding when it comes to the world around him, in theory, has led to him exaggerating what everyday people perceive as normal problems. Meanwhile, he views them as catastrophic events. This would explain why Courage characters like Eustace and Muriel rarely – if ever – seem to be afraid of the villains. For example, Freaky Fred may have just been a weird guy made terrifying because of Courage’s own fear of getting his hair cut.
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As with most fan theories, it’s all up to the viewer to decide how valid this one is, but Powerpuff Girls: Super Smash Up! #1 and 2 from Derek Charm, Jeremy Whitley, and Jorge Monlongo seem to both confirm and disprove this theory. First, readers see the Powerpuff Girls respond and react to one of these monsters, confirming that they do exist. However, readers also see Courage hallucinating what the Powerpuff Girls look like. At first glance, he sees them as far creepier and scarier than they actually appear.
It’s interesting to see this fan theory simultaneously confirmed and disproved. It’s disproved that the monsters are only in Courage’s head and that they all are merely manifestations of his own fears. At the same time, it’s confirmed that Courage does, in fact, overreact to normal things in the world. Yes, he views the world as far more terrifying that in it actually is, but that doesn’t mean that his fears aren’t valid. The world within the universe of Courage the Cowardly Dog is truly plagued with monsters, even if Courage views those monsters as scarier than they already are, as well as basic things and people as scarier than they actually are.
What’s most interesting, maybe even chilling, is the implication that all the monsters that Courage encounters over the course of the series are scarier than they really are. Audiences will agree that most of Courage’s monsters are downright horrifying already. Just imagine how scary they might actually be from Courage’s eyes, or what they may actually look like without Courage the Cowardly Dog intensifying their already intense features.
Source: https://screenrant.com/courage-cowardly-dog-confirm-fan-theory-darker/