Is the in game timer used or is it all real time?

Both, but we mostly look at Real Time since upon death, the In Game timer resets to the last checkpoint.

Can we go by in game time because that doesn't count loading, which is dependent on different consoles. It would make it more even for those of us running on less powerful hardware.

We would love to do that, but the in game time in shantae is super shitty. The in game timer stops when you are in a menu, or dancing etc. and the timer even resets to an older state if you game over.

Also the Ingame-Timer doesn't increase in Scuttle Town at all...

Really?!?? Ok, never mind then