For O'Connor, "perception is reality" basically means that each individual person has preconceived ideas about himself and the world around him that are built primarily on his finite senses, memory, and to some extent his heritage. More often than not this is merely a matter of pride but can also extend into the realms of racism and classicism, as evidenced by The Artificial Nigger and Revelation. The thing about perception and reality, though, is that a person's perception is always flawed and full of holes, requiring a significant shift in fortunes and an injection of grace to cure, which is the primary plot device employed by O'Connor throughout her catalog. Even so, as in the case of Hazel Motes and the grandmother, one's certainty in the nature of his world is fatally tinged with doubt, chained to Reality by something beyond their perceptions and thus highlighting the ultimate absurdity of human perception; this is what she calls the grotesque. At the same time that she does this, however, she also allows her characters to experience incarnational grace, a word which here means grace that is both totally divine (otherworldly) and rooted in time. What Tarwater and Hulga both receive is something beyond their own devices yet experienced in a way that speaks to their humanity and is individual to each of them, personally. Thus, grace breaks through the stony walls of their obdurate self-deceptions and entices their senses in a way that is entirely new, endlessly eternal, and finally within their grasps if they are simply willing to clutch.
Perhaps what people are really afraid of, as they rightly should be, is not that perception is reality but that reality is perception. Yes, but perception IS reality, and whether or not that's something to be afraid of is a personal matter.