Yep, that's right. This whole book is an allegory. Wait, what's an allegory again? We're glad you asked. We can understand an allegory as "any writing in verse or prose that has a double meaning. This narrative acts as an extended metaphor in which persons, abstract ideas, or events represent not only themselves on the literal level, but they also stand for something else on the symbolic level" (source). If you've read our section on "Writing Style," you know our author is no stranger to double meanings.
The way we see it, there are three main ways that allegory is used in The Phantom Tollbooth:
People: Every person or personified animal Milo meets represents something and has a special lesson to teach him. For example, King Azaz represents language and the Mathemagician represents numbers. Because the rulers each value their own specialty the most, their kingdom has split in half and its people can no longer achieve true wisdom. (And so, of course, this kingdom is called Wisdom.) To check in on what other characters mean allegorically, hit up the "Character Analysis" section.
Things: Even the objects that Milo comes in contact with have allegorical meanings. Even the tollbooth has some extra meaning. (See "Symbols, Imagery, Allegory: The Tollbooth" for more on that.)
Places: Each place that Milo visits on his journey represents something on the allegorical level. The book makes it easy for us to figure out what those places represent by giving them obvious names: the Kingdom of Wisdom, the Mountains of Ignorance, the Sea of Knowledge, and the Island of Conclusions. And don't forget the twin cities of Illusions and Reality. (Naming places after the things they represent is a key element of allegory, and you can see it in other famous allegorical works like The Pilgrim's Progress, which might as well be subtitled, "The Original Allegory.") For more examples of places being allegorical in The Phantom Tollbooth, go check out the sections "Symbols, Imagery, Allegory: The Doldrums" and "Setting."