I think that for most of his life Dylan felt different from other people due to his introversion, shyness, intelligence, and just the way he perceived things in general. Society tends to not appreciate these qualities as much as other qualities such as extroversion, popularity, good looks, and social skills. Maybe Dylan actually felt inferior because of this, but he was intelligent enough and self aware enough to realize that he wasn't actually inferior, just different. He eventually began to feel disconnected from humanity, yet he was forced to participate in the daily monotony of life as a human being. When he tried to be himself, he got shit for it.....shit from the jocks, he got called names, girls didn't want him.....he felt rejected and misunderstood. This was detrimental to him and facilitated further self isolation and eventually rage. So this is why he felt like people were afraid of what they don't understand.
In reference to his quote, "I denied who I was for a long time, until high school...." -
I think that by the time he became a teenager he possessed enough intelligence and self awareness to understand that he was different and he attempted to rationalize this by creating an internal magical world where he did not consider himself to be human.......this was his way of coping with his feelings. He was torn between feeling different from the mindless zombies around him to desperately wanting to fit in with them. He felt inferior and godlike at the same time. Inferior by society's standards, godlike or at least "normal" by his standards. This ultimately led to his contempt for the shallow society in which we live.
Here's another quote by Dylan bout how different he felt and how he felt about society:
“The framework of society stands above & below me. The hardest thing to destroy, yet the weakest thing that exists. I know that i am different, yet i am afraid to tell the society. The possible abandonment, persecution is not something I want to face, yet it is so primitive to me. I guess being yourself means letting people know about inner thoughts too, not just opinions & fashions. (Heheh) I will be free one day, in the land of purity & my happiness, I will have a love, someone who is me in a way. Someday… Possibly thru this life, maybe another, but it will happen… ”