Yeah, but the MC Hammer cameo at 2:10 is awesome.
I take it to be the fictional character's realization that he is a fictional character, which is painful for him, because he can't continue to believe he's awesome and immortal. Toy Story
lifted this plot wholesale.*
It's not supposed to be funny. This movie is deep, man.
* I guess the main credit goes to Pirandello, or something, though?