You were exploring the Playcare before inhaling The Red Smoke which caused you to fall into a deep sleep. In This Nightmare, You are watching a VHS Tape, you see Huggy’s face and arm come out of the VHS Tape.. before it ended, it said:

”All that awaits you are incomprehensible horrors... Their smiling mouth full of teeths and meat and plastic, a world that's theirs now... Welcome home.”

as he said that, Huggy came out of the TV.

”Hiii! Long Time No See! I’m Gonna Hug ya Now!”