Here's what really happened
ATTENTION: SPOILERS!!!!!!!!!!!!!!!!!!!!!!!
So, here's the deal.
a) David was a soldier in Irak. His sister, Sarah, died a few days before he returned, and he just lost his mind. He made up Meanwhile City and a split personality, "Jonathan Preest". He just wants to kill his father because he believes he's responsible for the death of his sister.
b) Milo created an imaginary friend, "Sally", in his childhood. Now, why does Sally look exactly like Emilia? I believe Emilia was following him (remember she did follow people, disguised WITH A WIG), and Milo saw her. He believes Emilia (disguised) is Sally, and continues obsessing with her.
c) Peter is a religious man who believes that God took Sarah from their side. Damn, he fits the Individual perfectly!
d) Emilia was sexually abused during her childhood (cliché!) and finds no better way for expressing her pain that making art out of suicide (now THAT is original). At the end, when she meets Milo and the camera pans upwards to show us MEANWHILE CITY, that means she just understood what David was trying to say to her (this is: she got into his mind).
e) There is NO character named Franklyn. It's just a dude who lived in the same building as Emilia and then moved, but his name remained on the buzzer.
So, everything that happened in Meanwhile City was actually happening in London, but we see it through the eyes of David/Preest.
It fits like a puzzle!!