The series is a drug-induced hallucination by Steve
Steve supposedly went to college and supposedly left Blue behind with his younger brother. At first, he daydreams about his brother playing Blue's Clues
just like he used to. Then he starts getting depressed. He turns to drugs, probably heroin (there are rumors that he died of a heroin overdose). Then he starts imagining that his dog can talk and has a brother and a bunch of puppet friends. He imagines all manner of fantastic stuff.