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Termina is less of it's own world and more of a bubble formed around the congealed particles of things that slip through from elsewhere.
>The Kingdom of Ikana didn't "Win", in fact they lost horribly. But rather than admit defeat, the King found a way to send the entire kingdom through to Termina. The process killed the inhabitants; but in a realm that doesn't exist, death doesn't mean much and they survived in the forms we see in game.
>This is why no GarO kingdom exists, why there's no place where a kingdom even COULD exist - they're back in the realm from which Ikana originally arrived.
>Likely a parallel to "The Kingdom of Hyrule", Ikana is notable for being the only area where the Triforce is displayed, despite its absence throughout the rest of Termina and the game at large.
>The swamp, the lowest point of the kingdom, is where the miasma of all else settles.
>The poison Link clears wasn't the work of Skull Kid, that's the natural state of the area. It was from this mutating ooze that the varied types and intelligence of Dekus evolved.
>What Skullkid sabotaged was the purification system that was constructed to keep the swamp livable - this is why we actively see a contraption powered up that purifies water, ratheer than stopping some unseen poison or similar.
>Throughout Link's time in Termina, we see reflections of other characters and cultures that are brought into this world, similar to other worlds.
>We are seeing a world made up of outcasts, rejects and lost individuals. That is why so many of them are out of place and melancholy.
>The skull kid who wasn't wanted by his siblings in the forest, the music-box-man who was rejected from his tribe, the owner of the curiosity shop who lost his own child, the bomb shop owner who followe his cognitively impaired mother; who in turn is losing her own mind, the researcher looking for answers to replace the hole left by his wife and the daughter who follows him.