I don't rationalise it at all; to me, that's just what knytts do when they die of anything but old age. I don't rationalise her picking up new abilities in the form of objects, either, btw. I just accept it as part of her world. That's why in my level it's normal for people to buy or discard powerups like people in our world buy or discard clothes.
What I do rationalise a bit is the two-dimensionality of Juni's world. I imagine it as three-dimensional, really, and some parts of the caves I've built so far are supposed to be oriented at right angles to others, or staggered in relation to others. In one case this leads to there appearing to be two different screens above a certain other screen - but in my head, one of them is not really on the same plane as the other. *g*