The Mario, Kirby, and other Nintendo guest stars in Link's Awakening seem a lot less out of place when you realize it's all just a dream. Even better if you pay close attention to the cameo enemies. Most were from Super Mario Bros. 2, which took place in a dream world called Subcon, and Kirby is, well, from Dream Land. It's lighthearted foreshadowing.
Why did the Item Get! jingle play when Marin joined your party? Because you two became an item! He even picks her up and sweeps her off her feet (literally!)
Why do the Shadow Nightmares take the forms of Agahnim and Ganon? Because this game's Link is the same one who fought them in A Link to the Past, and they've haunted his nightmares ever since.
Why is the boomerang so powerful compared to the rest of its counterparts? It's a dream. It's possible Link secretly wished the boomerang was more powerful, and the dream picked up on it.
The Nightmares take on the form of Agahnim and Ganon in the final battle because they're exploiting Link's personal fears and experiences in a vain attempt to defeat him. When that doesn't work, they turn into Death Eye and wildly swing in a last-ditch effort to try and defeat you.
Wind Fish is a Nintendo fan. If he dreamed about all those Nintendo-characters and cameos so much, it has to reflect to his true nature as well.
Why does the game go out of its way to mention at the beginning that Link's name is on his Shield and Sword, and that the game suggests he write his name on the Lv. 2 Sword when you get it? Because of his encounter with the Tokay back in Labrynna, where he shipwrecked onto their island and they took away his items that were laying on the ground, not knowing/realizing that they were actually his.
Why do whatever monsters kidnapped and abandoned Marin not even try to get her back after Link rescues her? For that matter, why was she kidnapped in the first place? She's part of the Wind Fish's dream. The Nightmares probably kidnapped her specifically so Link would save her, sparking a romance that they hoped would lead Link to abandon his quest.
Why does the Shopkeeper shoot lightning at a thieving Link? Think about how Link got to Koholint Island in the first place. As far as the Wind Fish knows, the last thing Link saw out there is probably the last thing he sees here.
When the game begins, it mostly features rather familiar Zelda elements. As you progress onward and unlock more of the island, you encounter more and more bizarre things. Like the owl said, the Wind Fish grows restless - As Link collects Instruments, The dream world slowly loses its illusion of reality and begins falling apart. It's even possible that the face shrine never existed until Link actually **saw it** with his own eyes, and is a result of a metaphorical mask crumbling away.
Look closely on the screen where you fight Angler Fish, and you can see a skull in the background among the rocks. After you complete the dungeon is when the ghost starts following you.
The game ends with Link out at sea on what remains of his boat. That's the last time we see that Link. Whether he made it back or not is left to a player's interpretation.
After their introduction in Ocarina of Time, Malon and Talon became recurring characters in several other Zelda titles. Why didn't the same happen to Marin or Tarin? Because they were both All Just a Dream and never existed in reality...