The Answer He Wanted

In that simulation Loki did not use all of his power.

But in that simulation Azief also did not show all of his card.

Instead, he is very calm and the attack is very simple.

Too effortless even. Raise his hand and summons ten thousand lightning bolts. One slash to end the world. These are the two only real attack he did.

He did not even shows his true prowess or break out all of his moves. And they are not here to fight

Loki simply wanted to warn Azief.

That if Azief wanted to drag him back to Pandemonium or divulge some things, it would not be easy to make him talk

That use of illusion to bring him into that simulator is probably also a test.

If Loki could not break through that illusion, Azief would ropeable uses illusion to know what he is hiding.

Some question Loki knows Azief would not ask.

The question about the future, Azief probably would not ask in details.