"The vitality of his illusion had gone beyond Daisy- beyond everything."
A. He was mentally unstable and unable to cope with reality. B. He had, through his years of dreaming, made her larger-than-life. C. The meeting was not as good as he had fantasized, and he was very disappointed.
The writer is trying to fathom the immense love for daisy. He means that through his years of dreaming, he had finally made her larger than life. This is an expression or a metaphor that writers often use to portray a specific image of the relationship.
It is not as if he is mentally unstable or incapable of understanding the reality. Instead, it’s his desire that he portrayed by saying that he dreamt of her so much that he actually materialized her into a life like form. It is an expression of love and longing for the person that makes his longing and yearning into a reality.