How do the toy become plural here? Also im guessing this sentece is indistinguishable from "the boy sleeps inside the toy?" and it would depend on context?
Exactly. I was thinking it referred to a pretty big toy, like a playhouse, car, or something along those lines.
Apparently, the purpose of tongue twister sentences like this is to provide training in brain-tongue coordination to assist in learning to pronounce Korean words correctly?
The plurality is implied, so there is ambiguity, but languages vary like that.