Papyrus lives in a reality of his own making, a dementia so consuming that he is no longer aware of the real world.
Out of all the monsters in the Underground, Papyrus is among the least physically affected. These changes include three broken bone spikes on his back that have been broken off at the bases, and a freakishly long neck that is mostly retracted into his ribcage.
He is childish, as his fantasy world is one where everything is right and the Underground is still well. He does the same thing every day under Sans’ supervision, building puzzles, making spaghetti, watching reruns of Mettaton’s old shows and reading the same books, over and over and over.
To be removed from his schedule, and his comfort, disturbs him greatly; his regressions can be incredibly violent, damaging to himself and others, and at times must be restrained in his bed to keep from harming himself in his rages. Sans keeps him close to home constantly for this reason, and has to watch over him every moment of the day so Papyrus doesn’t end up being targeted by a foolish, hungry monster, or harms himself without realizing.
The only change he is aware of, even in his childish delusion, is the damage to Sans’ face, and he often makes up far-fetched stories to explain the gaping hole away. When Aliza falls, he incorporates her into his fantasy, recalling a long ago time when Frisk was a child her age and latching onto it. He does not recognize that she is not his best friend, but in fact his niece.
However, on occasion, the real Papyrus peeks into the devastated world of the Underground before drowning back down under mad delusion.