It doesn't take place in the Toy Story universe, it's the character who inspired the toy in the Toy Story universe. Basically this would be the movie that Andy watched that made him want the action figure.
Oh, is there an actual Buzz Lightyear movie in real life? I thought the character was an invention of the universe.
If it's a fictional character who inspired a fictional toy in the Toy Story Universe, it'd follow that the character exists in the same universe as the toy, and in that universe, toys are sentient.