When the villagers become cocooned, they've been spirited away, taken into the lands of the spirits or gods.
So during levels, we are in the lands of the spirits and gods but cannot be perceived by the villagers. Only by Yoshiro. We can be felt by them, certainly. I have a few videos running circles around them and spooking them.
When we return to base, I believe we return to the normal world. Soh's presence can no longer be felt by villagers at all. Yoshiro can still sense us but we're not as 'corporeal' as we were before.
At times, Yoshiro seems to not be able to see us but she can hear us. In the tent, she'll listen to Soh but not look at her, seeming to not be able to. Other times, she looks directly at us.
(originally part of 'An oath beneath the lunar light.' but moved to its own post)