What stopped the time loop?

I am doing the 3.8 story quest and I’m very confused. Honami was trapped in a time loop, so we went to the tower in the centre to investigate how to stop the loop.

Then for some reason Chisa gets trapped in a hallucination and almost walks off a cliff, then we fight a random TD that wants to go home, we kill it and the time loop ends. I’m very confused - what was the TD, why did killing it end the loop, and why was Chisa trapped in a weird “your dreams come true” fantasy moment?

I promise I normally have media literacy and understand the plots of things but I feel really dumb after this story quest.

Thank you for anyone who can help me with this ❤️