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Aladdin is set in Bagdad, a REAL place, but he has a magic carpet that flies. Similiarly, all the greek tales were set around parts of Greece that are REAL places, and they had monsters and gods in, yet these were filmed and watched without riducule.
CTHD is NOT History, it is Mythology, taken from STORIES.
CTHD real world = no flying
Think of it much like our tales of the legendary creatures such as elves and fairies, folk that roamed land we know well in Britain, but are seen as folklore and myth. Flying in this film is a similar thing and taken in this context, it works well.
it happens in many chinese films where it is meant to be set in the early ages....
if you see the legend of zu (one of the latest chinese film releases)...get ready to be amazed by the 1500+ special fx :)