I justs finished reading the book and the idea that a simulation universe need not have another universe simulating it indeed baffled me. How do you make sense of that? I was disappointed there wasn't a clearer motivation for it.
Durham's "dust theory" is basically that every possible universe is simulated an infinite number of times across space and time within our universe as Boltzmann brains (he doesn't call them this but his idea of random bits of dust randomly computing things is equivalent), so actually running a simulation containing mind uploads on a computer ourselves is unnecessary to allow consciousness to exist within the simulation.
Durham describes the theory with a few more steps, like his idea of "launching" which I can't help but think Maria is correct in calling unnecessary. I think the story is trying to communicate that Durham's theory is subtly wrong or incomplete, especially when the surprising event happens at the end. I think the explanation for the surprising event at the end is (heavier spoilers ahead!) that there's a mix of Boltzmann brains running two different versions of Permutation City (one where Permutation City and the A-life universe are artificial simulations with arbitrary complicated physics and starting states exactly as we saw them be designed within the story, and one where the A-life universe is natural with a simple unified underlying physics and starting state and Permutation City is an artificial simulation/construct within it with a complicated starting state) which have been running in parallel and producing equivalent conscious experience, but by the end of the story, the latter version of Permutation City is simpler and therefore simulated in proportionally more Boltzmann brains than the first version. The latter version exists more, so when the conscious experiences of these two versions of Permutation City finally diverge, the story follows the latter version.
(I'm pretty confident in this reading of it. The story makes a regular point in talking about the complexity of the artificial simulations containing mind uploads and how much they're unlike the simple unified physics of our world. The point is brought up in a way as if the author or characters expect it to have significance; the surprising event at the end of the story is this point's significance finally being seen.)
