Dylan accepts that Santa is 'metaphorical' (though he doesn't know the exact meaning of that word) as an explanation for all mysteries about the man.  ("How can Santa fit down a small chimney?" etc.)  He knows that Santa is both metaphorical and 'real' (as metaphors are real).  Maybe he thinks 'metaphorical' means 'magical'.  Daddy has told him that Santa is a metaphor for 'the spirit of Christmas'.