"It's impossible to simulate a universe of our current resolution, because it would take more matter than the original universe."
The story is quite clear on this:
"a countable infinity of TEEO 9.9.1 ultra-medium-density selectably-foaming non-elasticised quantum waveform frequency rate range collapse selectors and the single tormented tau neutrino caught in the middle of it all"
That is, the entire simulation is being run on a single tormented tachyon.
As for this not being possible in the real world, well, sure. In the real world all evidence points towards there being limits on the computational capacity of the real universe. In their universe, by construction, they do in fact have access to countably infinite amounts of computation, at which point this is potentially possible. Physics in the story are obviously, by construction, not the same as the ones in the real world. This is, shall we say, a well-established literary move in the field of science fiction. Very, very, very... well established.
The story is quite clear on this:
"a countable infinity of TEEO 9.9.1 ultra-medium-density selectably-foaming non-elasticised quantum waveform frequency rate range collapse selectors and the single tormented tau neutrino caught in the middle of it all"
That is, the entire simulation is being run on a single tormented tachyon.
As for this not being possible in the real world, well, sure. In the real world all evidence points towards there being limits on the computational capacity of the real universe. In their universe, by construction, they do in fact have access to countably infinite amounts of computation, at which point this is potentially possible. Physics in the story are obviously, by construction, not the same as the ones in the real world. This is, shall we say, a well-established literary move in the field of science fiction. Very, very, very... well established.