1 The time 'we' (either as individuals or as a race) have as living people.
2 'and so' simply links the second two lines to the first two
3 I think you've got the meaning; maybe there's also a sense that we should only pay attention to real things (and not consider imaginary ones). But that sounds a bit cynical/calculating for this song - they probably used 'real' because they needed a rhyme (for something you haven't quoted).
Student or Learner