I'm pretty sure we could do a highly compressed simulation that interacts with the way our brains compress information, instead of working at the level of atoms. And it would look as high-resolution as the real world.

Your brain can create high resolution simulations. Once when I had a lucid dream, I looked at the detail in a plant's leaves and was amazed at the full detail I saw when looking closely. If you only do detail where people are attending, it doesn't take much processing power.