Does Sherlock know he’s in his Mind Palace in TAB? 

  (Sherlock Meta by Ivy Blossom)

He certainly does. Not the whole time; but most of the time. When Sherlock says he’s a user, not an addict, he’s certainly lying to himself, but he has some basis for saying so. His use of drugs is controlled. Dangerous, stupid, and emotionally motivated, but still (mostly) controlled. Just not entirely.

How do we know that Sherlock is aware that he’s inside a Victorian fantasy?

When he’s in the morgue examining the body of Emelia Riccoletti, he’s meant to be trying to solve her deception. But in line with his stated purpose inside his Mind Palace, Sherlock says: “Gun in the mouth; a bullet through the brain; back of the head blown clean off. How could he survive?” Why does he say that? Because he knows he’s not actually trying to solve the Riccoletti case. He’s trying to determine whether or not Moriarty could have fooled him. If he had forgotten that he was in his Mind Palace, he wouldn’t have made that mistake.

Later, in the greenhouse, after telling John that “I made me,” that he is alone because he chooses to be, he hears a dog crying and scrabbling against a door or the floor. A dog? Is that the Carmichael’s dog? Sherlock doesn’t consider that. Aware that he is in his Mind Palace, he thinks this difficult and personal conversation is bringing his other heartbreaks into the room with him and John: he says, “Redbeard?” If he were not aware that he’s inside his Mind Palace attempting to solve a crime, he would not imagine that his modern-day childhood dog was suddenly inside the Carmichael’s greenhouse.

The point where Sherlock begins to lose control of his Mind Palace is when Moriarty officially enters the 19th century, sends a “MISS ME?” message, and becomes a topic of conversation between Sherlock and Mycroft. He is suddenly a 19th century maths professor that Sherlock threw off a waterfall, not the criminal mastermind of Sherlock’s real, 21st century life.

And his mind catches the slip, warns him that he’s collapsing into his fantasy.

Mycroft tells him: “You’re in deep, Sherlock, deeper than you ever intended to be. Have you made a list?” We know what that means: Sherlock is reminding himself about the drugs he’s taken, and about his promise to his brother to keep a list. That’s real world stuff. Sherlock does not give Mycroft the list in the fantasy. He’s not ready to give up no it, not yet. He’s not done, even though it has become dangerous. He is about to lose control over it.

Sherlock is in too deep, but he opts to fall deeper into the fantasy and forget that that’s what it is in order to get his answers. He returns to speaking to Mycroft about Moriarty as if he is a 19th century man, and rather than argue or return to the topic of Sherlock’s modern day drug overdose, Mycroft snaps back into place as a 19th century version of himself: “If Moriarty has risen from the Reichenbach cauldron, he will seek you out.” At this point, Sherlock has slipped fully into the dream. He is out of control. And this is where things get weird.

The two universes blend together. He can’t tell the difference between them. There are echoes of reality in his fantasy, and echoes of fantasy in his reality. Watson is disappointed and angry about his drug use; modern-day John appears in the train carriage; the costumes and gongs appear; the women in the church (Molly, Janine) appear in the modern day incarnations as well as their 19th century ones; Moriarty appears, inexplicably, as a bride. This narrative is completely off the rails, so much so that Sherlock is becoming aware of it again.

But not for long. He dreams he’s waking up on the plane, and goes off to dig up Emelia Riccoletti’s body. He thinks he’s conscious, but he isn’t. He’s abandoned by John and digs up an entire grave before realizing that he’s still in his head. Only a supernatural element (the skeleton starting to speak and move) jolts him back.

Finally, he returns to Reichenbach Falls, the setting for the death of the 19th century Moriarty. He says: “Congratulations. You’ll be the first man in history to be buried in his own Mind Palace.” Moriarty is Sherlock’s weakness, he’s his overdosed brain, he’s the tail end of Sherlock’s inability to remain conscious and keep a grip on what’s real and what isn’t. But he’s in control again, aware that he is battling his inner demons rather than external ones, protected by Mind Palace!John. He can jump off a cliff to wake himself because he knows the cliff is a fantasy.