The Unreconciled Stars Event was the main event of version 1.1, in where meteors with unique effects fall to Teyvat, and put several people into a deep sleep. In that deep sleep, the people experience a dream in which they are climbing a mountain.
Through the story, it is concluded that the dream is the memories of an adventurer from 2000 years ago who was attempting to climb the tallest mountain, Pilos Peak, in Mondstadt. After some searching, the traveler and Mona discover that the once tall mountain was now an island through the destructive power of Barbatos.
This island is now known as Musk Reef which contains the gate to the Spiral Abyss (end-game content) and they head there.
As they land on Musk Reef, they encounter Scaramouche, who they had previously met despite not being initally aware of his harbinger status.
Scaramouche was in front of a large crystal, the core of the meteor event, and had just woken up from a dream. He does not know anything about the adventurer from 2000 years ago and informs the traveler and Mona that "The stars, the sky... It's all a gigantic hoax. A lie".
He shortly leaves and they destroy the crystal core.
This theory is one of the oldest theories and has been one of the most popular, it was shortly established after the 1.1 event. The False Sky theory is where all of Teyvat is in fact upside down, and is essentially the hell of the planet.
This would mean that Kheanri'ah (which has been established to be "under" Teyvat), is the right side up and the sky that players can see in the Spiral Abyss chambers, is the real sky.
The texture of the night sky is actually unique and the stars surround a specific point, which happens to be directly above Venti's statue in Mondstadt. At the base of the statue, there is lettering, which when reversed, reads "the gateway of Celestia", which may imply that the fake sky is a gateway of sorts.
There's another instance of upside down symbolism in the game, which is through the defiled statue from the Archon Quest, "We Will Be Reunited", which may represent the original order of the world before everything was flipped upside down.
The visual below helps to visualize this theory.
A similar theory that has become more popular lately is the idea that the planet is within a black hole. This theory revolves around the time difference between the Abyss and Teyvat. Such as Childe's (Tartaglia) character story where he had stayed in the abyss for 3 months but when he returned to Teyvat, only 3 days had passed. This is a phenomenon called "time dialation"
and is heavily seen in black holes. A black hole has such a strong gravitational pull that it can alter spacetime and supposedly slows down time close to the center of the black hole. It is also theorized that time stops completely at the center.
Teyvat is at the center, or the singularity, and time passes very slowly, while the Abyss is closer to the edge. This would also explain why Kheanri'ah was much more advanced as it had more time to progress.
This can also be seen with the Inteyvat, the national flower of Khaenri'ah and the flower in Lumine's hair (female traveler), which has been established by Dainsleif that they go through the cycle of life and death in Khaenri'ah, but completely freezes when they end up in Teyvat.
It is speculated that Teyvat is able to survive despite being in the center of the black hole through the power of the four shades, and that they also simulate the illusion of a regular world and time passage.
Fun fact: if someone had played the 1.1 event and met Scaramouche, in the Inazuma archon quest, when they meet him again, he'll remember them.
However if they didn't play the event, Scaramouche will introduce himself and greet the traveler.
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