Ah, Narsis Dren, a spoiled Indiana Jones, here again .. I guess the thing with the bottle was the result of an Alteration spell, rather than the Illusion one. Dren says, the spell fooled his psyche to make him believe he was that bottle. If we are not the spell's targets and the spell is indeed an Illusion one, then what makes us see the bottle if not an Alteration magic? The book says it is easy to confuse Illusion and Alteration. I suppose this is a good example of it.
it does now seem after reading it a touch confusing whether or not it is an Illusion Spell or Alteration spell, and you are right according to this book that if it was an Illusion spell - between the caster and the target (Narsis Dren) - then all who came across this would not be able to see Narsis as a bottle but only as a Dunmer who thinks he is a bottle - but if it was an Alteration spell then wouldnt we all think we were bottles that could not move?
Thank you for understanding my thought, @Eporem! Regarding your question: that depends on the spell's target. Alteration changes the target, the part of reality, itself, so everyone sees it changed. The Illusion changes the target's perception of reality, so nobody feels it except the target. Hah, there's an old joke on that thing I remember an eastern guy told me years ago: a tournament of the greatest mages. The final round between David Copperfield and a customs officer. An arcane flourish - and David Copperfield turns a plane into an elephant. "Wow! Unbelievable!" - the audience's enthused. Then the customs officer comes in. He points at an open stores van and asks the audience of what they see in there. "Sturgeon roe!" - the audience replies. The customs officer closes the van, takes the customs permit, breathes onto the stamp, stamps the document, then points at the van again and says: "Green peas!" . Well, it might not be that funny, but Copperfield's magic there was an Alteration one - he changed reality witnessed by everybody (well, of course, if that was not an AoE illusion spell with the whole audience as it's target). The same time, the customs officer showed an illusion spell.
That book is very interesting one, indeed. I'd point your attention to my favourite lines there: "Our reality is a perception of greater forces impressed upon us for their amusement. Some say that these forces are the gods, other that they are something beyond the gods.". Beyond the gods, indeed, but still impressed upon those NPC for our own amusement. A nice phrase in an in-game book describing the role of the developers and us, players, in this video game, isn't it ? The Monkey truth is way bigger than that book there, it shows us ourselves, uses the language of the inhabitants of that world, describes things from their distant perspective and calls to reveal it. I wish you an interesting journey deep into the lore, @Eporem! That world deserves decades of study and still it has things to surprise us even after all these years.