So if someone managed to fully explain the illusion of consciousness, would it start to be considered a standard "physical" phenomenon?
That is the idea and precisely why Dennet's hermeneutic approach is irrelevant to neuroscience. A heuristic approach to consciousness and the philosophy of mind, once adequately framing and identifying the issues at hand, will pass off the empirical research to science. For a long time consciousness was thought to be beyond the purview of objective scientific research. While there is an epistemic limitation in that we cannot verify statements from a first-person subjective perspective (e.g. "I feel glad"), we most certainly can have a third-person objective investigation which advances knowledge claims regarding first-person subjective ontology. Stuck in an informational-computational model Dennet has literally missed this bus which is actually heading to Cognitive Neuroscience town.
If consciousness was an illusion, would it be less real?
Per Professor John R. Searle, "where consciousness is concerned the existence of the appearance is the reality" but as far as Dennet is concerned consciousness simply does not exist.
As for what is meant by "illusion": in the sense that a rainbow is the illusion of, in the French l'arc en ciel, or, an arc in the sky, there is no actual arc, only a literal (figurative, or, metaphorical) arc in the sky. In the sense that this illusion is the refraction of light through a prism, the actual lightwaves do exist and, given the perspective of the observer, appear as an arc through the sky. Similarly, a sunset - from the vantage of an observer - appears as if a giant glowing orb descends below the horizon, yet we know that this descent is only illusory as the observer circumnavigates the glowing orb upon their own rotating sphere (Earth). In Dennet's sense of illusion, he is denying the existence of both the arc and the lightwaves; both the observer and the descending spheres. In his "Consciousness Explained" all he does is offer a metaphorical explanation of consciousness:
Human consciousness is itself a huge collection of memes (or more exactly, meme-effects in brains) that can best be understood as the operation of a "von Neumannesque" virtual machine implemented in the parallel architecture of a brain that was not designed for any such activities. [italics in the original, p.210]
Like Dawkins, the inventor of the meme, he relies on a teleological explanation and is begging the question as to purpose. Dennet merely presents a way of looking at consciousness instead of offering a heuristic approach to obtaining knowledge regarding consciousness. 10+ years after writing "Consciousness Explained", Dennet is still trying to "begin to imagine how the brain creates consciousness." In short, Dennet is advancing what John Searle describes as a "Strong AI" accounting of consciousness. Dennet's behaviorist reduction of consciousness to an undesigned algorithm and his mistaken materialistic mis-read that consciousness cannot be examined objectively, amounts to little more than simply denying accounts of consciousness which purport an irreducible first-person subjective ontology and labelling them "obscurantist":
Postulating special inner qualities that are not only private and intrinsically valuable, but also unconfirmable and uninvestigateable is just obscurantism. [p.450]
In "Consciousness Denied: Daniel Dennet's Account" - chapter five of Searle's "Mystery of Consciousness" suggests a direct approach to testing Dennet's specious claims:
[Dennet's] rhetorical flourishes here are typical of the book, but to bring the discussion down to earth, ask yourself, when you performed the experiment of pinching yourself were you "postulating special inner qualities" that are "unconfirmable and uninvestigatable"? Were you being "obscurantist"? And most important, is there no difference at all between you who have pains and an unconscious zombie that behaves like you but has no pains or any other conscious states?
Searle sums up Dennett's position:
Dennet, as Kierkegaard said in another connection, keeps the forms, while stripping them of their significance. He keeps the vocabulary of consciousness, while denying its existence.
Earlier Searle points out that:
The subjective feelings are the data that a theory of consciousness has to explain ... The peculiarity of Daniel Dennet's book can now be explained: he denies the existence of the data. He thinks there are no such things as ... the feeling of pain. He thinks there are no such things as qualia, subjective experiences, first-person phenomena, or any of the rest of it. Dennet agrees that it seems to us that there are such things as qualia, but this is a matter of a mistaken judgment we are making about what really happens.
As for whether consciousness is real if it is an illusion, Searle suggests that it is very real even if an illusion:
But couldn't we disprove the existence of these data by proving that they are only illusions? No, you can't disprove the existence of conscious experiences by proving that the are only an appearance disguising the underlying reality, because where consciousness is concerned the existence of the appearance is the reality. If it seems to me exactly as if I am having conscious experiences, then I am having conscious experiences. This is not an epistemic point. I might make various sorts of mistakes about my experiences, for example, if I suffered from phantom limb pains. But whether reliably reported or nor, the experience of feeling the pain is identical with the pain in a way that the experience of seeing a sunset is not identical with a sunset.
In short, perspectival and situational accounts (i.e. "what is true to [you; me; us; them]) may differ with empirically verifiable accounts (i.e. what is true), but this does not diminish the value, meaning or existence of the conscious experience as described situationally or relative to perspective.
There is a very informative series of NYRB reviews and exchanges between Searle and Dennet which may add to your understanding of Dennet's position:
"The Myth of the Computer" by John Searle, a review of "The Mind's I: Fantasies and Reflections on Self and Soul" composed and arranged by Douglas R. Hofstadter and Daniel C. Dennett
"The Myth of the Computer: An Exchange"
Daniel C. Dennett, reply by John R. Searle
"The Mystery of Consciousness"
John R. Searle
"The Mystery of Consciousness: Part II"
John R. Searle
‘The Mystery of Consciousness’: An Exchange
Daniel C. Dennett, reply by John R. Searle