The film depicted a post apocalyptic society, where aliens had previously befriended Earthlings in a devious manner to extinguish them from the face of the Earth!
This was done by showing them (us) how to make learning/thinking machines that would eventually think themselves superior to biological imperfect humans.

As the war raged on, we found a way to duplicate thoughts, memories, and emotions onto a vast computer grid, accompanied by avatars of the linked person who never knew the nature of their reality.

Forget the first part for now.
The "vast grid" mentioned could be real in a few centuries, but hold the phone!
"What about physical interaction?"
Not possible.

If the grid is powered by thought and memories, dreams and fantasies, imagination and emotion, nobody else can manipulate these fantasies, etc., although if we had the technology (which they are working on), actual dreams and fantasies could be monitored, but not manipulated.

"Could we interact verbally?"
Yes and no.
From a teacher's perspective, she might see her student raise his hand when a question is asked.
The student however wouldn't be raising his hand during a tough question.
In fact if human nature doesn't change too much, he might be seeing his teacher stripping when her image is fully clothed!
I'm sure he'll forget she's just an avatar, in fact we might not know our reality is false at all, a theory that scientists have already.

This put's a new spin on the song that goes:
"Life is but a dream."