@yuuky_cross
It's quite conceptual and the translation's a little clunky. Let me try to lay it out in direct terms.
The Lady of Vessel is a concept/idea in the spirit world. That idea is what makes the House of Vessels and everything in/around it. The physical Lady of Vessel we see is just an individual, mortal person who is the embodiment of that concept. They've been filled up with the idea. I'll say "physical Lady of Vessel" every time I mean the physical woman, while Lady of Vessel is that idea of what she and everything around her is like.
From an outside perspective (Kosaji's uncle), it appears as if children enter the House of Vessels and disappear, while the physical Lady of Vessel remains eternally unchanging. That's why he thinks she eats children. But in actuality, since it's an idea, you can learn everything about the Lady of Vessel by living in the area and being taught by the physical Lady of Vessel. Once the child knows everything about the Lady of Vessel and is given all of the House of Vessels, they see themselves as the physical Lady of Vessel and thus they instantly are the physical Lady of Vessel. While the previous physical Lady of Vessel dies and becomes part of the overall concept/idea of the Lady of Vessel.
The current physical Lady of Vessel still has her consciousness from before she was the Lady of Vessel, that's what was in the dark room. She has to keep that part of her consciousness that conflicts with the Lady of Vessel stored away so that she can perfectly think of herself as the physical Lady of Vessels. Because the Lady of Vessel is an idea, both she and outside observers have to recognize that idea in the same way. That's why she mutated into a monstrous form when Kosaji doubted her: he stopped recognizing her as the Lady of Vessels and started seeing her as a monster, and so she wasn't the Lady of Vessels until he recognized her as such again.
You can metaphorically see it as the Lady of Vessel consuming the children/being consumed by the children, but that's inaccurate. It's more like each child is taking on the role or job of the Lady of Vessel in the spirit world, and then training someone else to take on that role before they die. If any of the children didn't want to be the Lady of Vessel, they could regain their human consciousness/stop acting as the physical Lady of Vessel and they would presumably be a normal human again. It's something they actively choose to continue, and they're chosen because they're the type of person who would be fine being a vessel for the Lady of Vessel as a concept. The previous physical Lady of Vessel does die when the transfer happens, but they're mortal anyways, so presumably they only look for a successor once they're getting close to death or there's a child they really want to help.