Continuity mistake: In the farm, after Hunk the farmhand has had his finger smashed, he scolds Dorothy. When she starts to leave, he hammers his hand and takes off his glove, shouting and turning around in pain. The angle swaps to a wide angle and he is working totally calmly with both gloves on.
Continuity mistake: Dorothy arrives home and there's a man fixing a cart whose finger gets smashed. In the wide angle his right hand is on the wheel, but a frame later in the close-up it's not.
Continuity mistake: When the movie begins Dorothy is running and Toto is a meter to the right of her. When she kneels down, he is behind her.
Continuity mistake: The Munchkin with the certificate of death sings that Dorothy is intelligent. He and another munchkin are standing face to face in front of her. Half a second later they are meters away from each other, standing to the side of Dorothy.
Continuity mistake: When the Wicked Witch of the West asks Dorothy who killed her sister, Dorothy has Glinda's wand across her chest. A shot later Glinda is holding it straight up, away from her.
Continuity mistake: When the group reads the sign in the Haunted Forest, the lion holds the handle of the butterfly net away from his breast. In the next shot it's pressed against it.
Continuity mistake: When the cyclone begins, two farmers run to protect the horses. One goes inside the stable and the other runs away. Half a second later he is standing next to the stable's door.
Continuity mistake: In the scene where the tornado is forcing everyone into the storm cellar, there is a bench lying on its side. In the next scene, when Dorothy arrives at the cellar, the bench is not only turned in an entirely different position and seems to have gotten bigger, but a wash tub has been placed in front of it.
Continuity mistake: Prior to the Wicked Witch attempting to retrieve the ruby slippers from her sister, Dorothy is seen standing in front of Glinda still holding the lollipop she was given. The camera then turns to the Wicked Witch of the West and when it turns back to Dorothy, the lollipop has disappeared.
Continuity mistake: When Dorothy, Scarecrow, and Tin Man start singing "Lions and tigers and bears. Oh my." they show a close up of Dorothy. She is facing her right in the close-up, but when they show all three, she is facing slightly to her left.
Continuity mistake: Prior to the Tin Man's dance after he's saved by Dorothy and the Scarecrow, there is a shot of Dorothy with the Scarecrow and the Scarecrow is holding the oil can. The camera turns to the dancing Tin Man and when it turns back to Dorothy and the Scarecrow, the oil can has somehow ended up in Dorothy's hand basket.
Continuity mistake: During most of the movie, all the characters have at least three shadows, and when the guy that guards the entrance to the Wizard first goes in to speak with him, he has at least 4 or 5.
Continuity mistake: During the Tin Man dance, Toto switches from one side of the Tin Man to the other side without walking there.
Continuity mistake: When Dorothy wakes up in Kansas, Prof. Marvel sneaks up in the window behind. Dorothy's pigtails change positions between shots.
Continuity mistake: During the tornado scene, Dorothy gets knocked out by the windows, but right before the house hits the ground, the windows are back and intact.
Continuity mistake: When the Wicked Witch leans down to see the ruby slippers sticking out from under the house, she is pointing down at them, and practically touches them. But in the subsequent shots, she is in her standing spot from prior, pointing between Dorothy and the house.
Continuity mistake: When the Tin Man tells Dorothy that he was chopping that tree, she starts to turn her head to look at the tree. But then in the jump cut closer, suddenly she's looking back at the Tin Man.
Continuity mistake: When the witch is making her way towards the house a shadow disappears and reappears.
Continuity mistake: Dorothy's giant lollipop disappears after the witch appears.
Continuity mistake: When Prof. Marvel holds the photograph, his fingers disappear in the close-up.
Answer: In the film it's left ambiguous. At the end it's strongly implied that she was dreaming. The characters she meets all look like people she actually knows. In the original book, she actually went to Oz.