"Razputin: So this is it... the Mental World. [Pause] Elton: It looks like a dentist's office. Razputin: A mental dentist's office!" — Raz, first time entering a Mental World.
A mental world is an area of a person's mind. Multiple mental worlds are explored during the course of Psychonauts. The Collective Unconscious is the central hub from which Razputin can access all available Mental Worlds in the game.
Mental worlds reflect the person they're of. They show the person's fears, hobbies, hatred and etc.