Antecedents and Subject

1. A simulator is a device that tries to present or replicate the same conditions that exist in nature.
The 'they' refers to the simulators ( not to researchers) and 'their' memory to the simulators’ memory. The antecedence of both is perfectly in order.

2. and the sensory dissonance that induces upsets people’s balance.

This is an independent clause. The subject is 'the sensory dissonance'. But the relative pronoun ‘that’ here refers to the simulators. When expanded, the sentence means to say: the sensory dissonance the simulators induce upsets peoples balance. Please note the verb for the singular dissonance is 'upsets', whereas since the pronoun ‘that’ refers to the plural 'simulators', its verb is the plural ‘induce’. Some might argue that the pronoun should have been ‘those’ actually instead of ‘that’ to denote the plural ‘simulators’. Their argument may be correct.