The dragon meets Sandy and forcibly takes her to the Land of Living Lies, leaving her claiming that she preferred to be there anyway because her house is "broken".
Unfortunately, the impossibility of living in such a world where nothing expressed can be believed is reinforced when Sandy is presented with strange laws about no eating the flowers or picking the apples; which are not around.
She is then subjected to a bizarre trial in the Caverns in the Living Lies by the denizens of the land, where she panics and falsely blames Puff for her crime.
At that statement, the natives chortle with delight at what Puff explains is a self-deceptive lie and makes her realize that she had nothing to do with her parents' break-up and they still love her.
Sandy immediately takes that advice after reconciling with her parents while exonerating her dog and begins her first story, which Puff confidently notes is sure to be a classic.