A dream / simulation created for a purpose. A world made to house / repair a broken man because real life wouldn't work. Where being frozen in the middle of the school year is merely set dressing, and the real important parts are when Akira remembers parts about his past. Maybe something went horribly wrong in setting up this dream simulation and Akira's memories were lost. Maybe certain characters were created to help him or whoever wished for the world in the first place. Maybe one of them had a chance to become something more or was given a job to replace the hole in his heart.
I don't think anyone will have a problem with the second one.
I think this is a better interpretation of a "simulation" plotline and could possibly work. Like you said, the overarching reasoning behind everything doesn't matter as much as what's actually happening to the characters.
I'm honestly leaning more towards the everything Akira experiencing just being symbolic manifestations of his delusions a la Monogatari series. The world is real and everything is happening, but the narrator(s) are unreliable. Whether supernatural or not, I still feel like the Gods are things he created in his own mind, as segments of his personality and trauma that he is splitting away from himself and giving sentience (either real or false.) Sana and the other characters might be experiencing this phenomenon as well, conjuring up their own "gods" because they can't face their problems and insecurities.
The "gods" are real, because they believe they are. They must be believed in, be feared, be dreaded, be avoided, be respected, be worshipped, be feared, be despised, be wished upon. For that is why they exist.
It's a common theme in Japanese story-telling and it stems from the eastern cultural belief system and how they viewed gods in the past. I wouldn't put it past Selebus, we've seen first-hand his familiarity with Japanese culture throughout the story.
As for the reason behind why everyone is manifesting these supernatural or delusional entities? Who knows, maybe there is something wrong with the town they live in, Silent Hill style. Maybe there's an evil advanced pharmeceutical company that is drugging the townspeople to keep them controlled/experimenting with them. Could go so many directions.
Again, what matters is not the explanation of the events but the meaning and narrative purpose behind them in my eyes.