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Just noticed that “dictionary” section was added to the world editor. Can anyone tell me what’s difference between system prompts for game rules and dictionary entries?

The system prompt can be used to describe to the AI what the world rules are. For example, it is always cold.

The dictionary, as far as I can tell, is a way to explain some words to the AI that it normally wouldn't be familiar with. For example, if you want to create your own race for a character with a custom name, you can set the name as the "key" and then explain what the race looks like and what they do inside of the "value".

to expand on Mali’s explaination, the dictionary is for saving memory. The AI has severe amnesia and can only remember like an essay’s worth of information before it starts to forget things. So if you write detailed information about everything in your world in entities and location descriptions, there won’t be any memory space left for the game to actually run (so the AI wont remember any events and such, may not even work at all). The dictionary is there so you can store very long definitions of specific things in your world that only gets sent to the AI if the keywords are mentioned somewhere in the AI text or your action text.

Does this mean any in-universe realities that work differently from our real world or at least always got misinterpreted by AI has to be redefined as a  dictionary entries?

no, again, dictionaries are just a way to use memory more efficiently. Don’t even worry about if if your world can fit into memory