They're in a Grant Ward Sim. (This is also a hint that Framework Ward will either sacrifice himself for them to escape, or leave with them and become a true Agent of SHIELD.. LMD or something.)
Monsters can be made but so can heroes.
AOS has always been mum on Ward actually being irredeemably psychopathic since birth or whatever. He had formative experiences to encourage an internal and external narrative, as 'bad people' much more likely have happen in reality. Season 1 reveals his evil, Season 2 shows the consequence of his evil, Season 3 adds tragedy to what evil he has wrought, and Season 4 shows a sliver of redemption, if we're to believe in Ward in some cosmic sense than practical. That redemption comes partially as the other characters realize just how blurred good and bad can be when experimented with.
Thankfully, AOS didn't do a real cop out with directly redeeming S1 Ward. That's not how it went, and not how it ever should have went, if the goal was good (instead of just cheaply effective) storytelling. This is more about how the other characters can view the character of Ward, not how he as a person can be quickly forgiven and his offenses forgotten and everything is better now lalala.