It definitely seems like aspects of conscious experience are just more parts of the world model, e.g. we experience having a continual visual view of the world through our eyes, like watching a movie, but we know that's not what is actually happening physically.

Where I get confused though is this sentence: "...the story that our self-model comes up to explain (and help predict) our reactions to ourselves". What is "ourselves" here? That implies some observer that the self-model is explaining things to.