This bit of ambiguity is what makes the episode so charming. Whether they actually met on that island or not, the show lets the viewer decide if it was destiny or just a "fairytale" Bandit tells to make his life feel more magical. Why We Love It

The "fairytale" element peaks when young Bandit encounters a girl with a "She-Ra" ponytail (a young Chilli) at the beach.

The 80s Were a Wild Place: A Deep Dive into Bluey’s " Fairytale " (S3E26)

: She has no memory of this meeting and maintains they actually met years later at a party in London.

The core of the story involves Bandit being a bit of a "jerk" to his younger brother, Stripe. After Bandit teases him once too often, Stripe "curses" Bandit, decreeing that he cannot speak until someone says his name.