Every sentient being has a headspace; a spiritual sanctum for their thoughts and emotions. Headspace is a visual/sensory world inside of one's mind. Headspace is a fluid, changing atmosphere, and is visited during dreams. The setting changes depending on the desires of the headspace's owner, as well as their emotional state.
Anomalies have an innate ability to lucid dream. Here, they explore fantasies, revisit happy memories, etc. Due to the nature of lucid dreams, if they don't have a firm grasp on their mental state, the dream spins out of control in potentially traumatic ways.
Some demons utilize headspace to communicate audio and visuals to the person whose body they're occupying. Headspace can function as a pocket reality that only takes place in the mind of an individual. Usually, when a demon is in headspace, they are there for confrontation. The owner of the body sees the demon, and they speak face-to-face.
Many demons use headspace to intimidate and frighten the host to make them obedient; it is a weapon in their arsenal of psychological infiltration abilities.