Continuity mistake: When the Munchkins come out onto the Yellow Brick Road, one of them comes out of a sewer hatch on the yellow bricks. It's located on the ground in front of the first small white cottage with the thatched roof, right behind Dorothy's house. Throughout this scene, the dark hatch is visible whenever we see that specific location, such as when the Wicked Witch of the West asks, "Who killed my sister? Who killed the Witch of the East? Was it you?" but as Dorothy begins to "follow the yellow brick road", there is an overhead shot followed by a front shot and the dark hatch has disappeared.
Continuity mistake: Just before the Wicked Witch leaves Munchkinland she says to Dorothy, "just try to stay out of my way" and her broomstick is facing upwards. In the next shot it's facing downwards. (00:30:35)
Continuity mistake: In a close-up of the Tin Man as Dorothy says, "We were just wondering why," there is no oil on his shoulder joint. In the next shot his shoulder joint is wet. (00:45:40)
Continuity mistake: When the four are at the end of the hallway to see the Wizard, Toto is near the lion's feet. As it switches shots, he is behind The Tin Man.
Continuity mistake: Not only does Dorothy's hair change length during the film, it also changes shade. (00:19:40 - 00:22:15)
Continuity mistake: The Wicked Witch looks over at Dorothy and says, "I can't wait forever to get those shoes" and the metal hand she uses as a book mark rotates 90 degrees in her direction without being touched. (01:18:00)
Continuity mistake: Dorothy says, "Oh, now I'll never get home" and her dress is clean. Several shots later the Tin Man asks, "What have you learned, Dorothy?" and there are now spots all over the front of it that last for the rest of the scene. (01:35:25)
Continuity mistake: Glinda tells Dorothy, "Their magic must be very powerfulÂ…" and Dorothy has her left hand around Toto. In the next shot she's holding the flowers in front of her. (00:30:20)
Continuity mistake: As Dorothy throws the water on the Wicked Witch the Tin Man goes from holding his ax in front of him to holding it close to his chest with the ax head sideways between shots. (01:26:20)
Continuity mistake: We see the top of the house before the Wicked Witch appears and the right half and chimney are dark. After she appears the lighting has changed and the top of the house is all lit up. (00:45:55)
Continuity mistake: When Dorothy first enters Munchkinland she steps out and in a front view we see her holding her hands close to herself, but when we look from behind, her hand is way out to the side. (00:18:50)
Continuity mistake: When the mayor of the Munchkin City comes out of the doorway his over sized watch reads 5:30. In the next shot it reads 5:00. (00:25:40)
Continuity mistake: Dorothy is standing against a tree stump when the Wicked Witch throws the fire down at them. In the next shot she's nowhere near the stump. (00:46:20)
Continuity mistake: Throughout the film, if you look at the Wicked Witch's nose, you can see that in some scenes the prosthetic nose is barely longer than Margaret Hamilton's real nose. In other scenes, the tip of her fake nose hooks almost all the way down to her mouth.
Continuity mistake: When Glinda sings, "And Kansas she says is the name of her star" you can see the black manhole cover behind her and none of the Munchkins that are around it in the next shot are there. (00:23:15)
Continuity mistake: Inside the cyclone, looking out the window the wind is blowing left to right. In the room the wind is blowing in the window from the right. (00:18:05)
Continuity mistake: Prof. Marvel reaches to open the door of his wagon as he walks Dorothy in. In the next shot the door is already open. (00:12:45)
Continuity mistake: After they first meet him when Dorothy pulls the Tin Man's arm down we see her dress and there's nothing on it. In the next shot there are several wet spots on the front of it. (00:41:55)
Continuity mistake: The Cowardly Lion says, "I'll fight you with one paw tied behind my back, I'll fight you standing on one foot." as he proceeds to put his arm behind his back and lift up his left leg. In the next shot his arm is out in front of him and his leg is on the ground. (00:49:35)
Continuity mistake: Before he is crowned, the Cowardly Lion has a blue flower next to his left ear. In the next shot it's gone. (01:06:00)
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.