I like the fact that Lily knows the story but she still acts like a child 😩 she's so ba...

Since it’s so different I think she just doesn’t believe it. She sees it as some made up thing. Spoiler!
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Apparently later on she actually remembers it happened and distanced herself from both the emperor and the mage. She doesn’t forgive them easily either

I think she clearly knew. It has a lot of implications in some chapters, especially during her crashing out in front of the mage's tower. She's also been actively avoiding and expressing her disapproval of both the mage and the emperor.

I don’t think so. It was mentioned already that she went back to her actual age with her mental age, so her brain isn’t very developed. Also, she thinks it’s a “novel” not her past life at all, and 95% of what is going on is so different, why would she even believe it? Her disapproval of the emperor and mage is being cautious, but does she really act the way she would if she actually had her memories? Would you just slightly “disapprove” of someone who held you hostage and borderline tortured you? Her crash out in front of the tower I believe is her actually getting her memories back slowly, one by one.