I always took it as Benny being a dream, someone informed by Sisko, the Prophets, and the Pah-Wraiths.
I think it is important that the Prophets picked someone who was very aware of humanity’s issues with discrimination and could rely on knowing the lessons learned from humanity to help Bajor transition.
Strange New Worlds confirmed that Benny Russell was a real author in the history of the Trek universe, though. So he was definitely a real person, though perhaps the version of him connected to Sisko was from some other reality.