Palace won their other top-flight match against Sunderland and took the lead at Selhurst Park through Adrian Mariappa's early header before stunning volleys from Pajtim Kasami and Steve Sidwell swung the game in Fulham's favour.
Second-half goals from Dimitar Berbatov and Philippe Senderos condemned Palace to a fifth consecutive defeat and left Holloway reflecting on the ruthless nature of the Premier League.
"We went with the same team that finished quite strongly against Liverpool and we got ourselves in front," Holloway told Sky Sports.
"But the ruthlessness of this division and the skill of some of these players you saw in that first goal which was completely something else.
"It knocked us a bit and I tried to pick them all up at half-time, then we go and make a couple of mistakes from set-pieces, which we're normally good at.
"It's tough and unforgiving, but we've got to bounce back. There was lots of good stuff in it, but unfortunately we're letting too many in and not scoring enough."
Palace's only win this season came against bottom club Sunderland and Holloway's side next face leaders Arsenal at home on Saturday.
The Palace boss added: "I think you end up with the stuffing knocked out of you, but you've got to deal with it, we're not the only team to be like that.
"A win will turn it right around and realise how close that we've been. To get ourselves in front, then we needed to be even more positive, but we're putting crosses in and not getting enough bodies in the box.
"I can't fault the effort, though, that was terrific. That quality comes out in the end and we've got to believe we've got it.
"We've got to work at it and pick ourselves up. Now it's Arsenal."