Continuity mistake: The Witches bronze astro globe moves from the window sill in different shots of her castle office. (01:16:10 - 01:18:35)
Continuity mistake: During the Lion's king song, the Tin Man breaks a flower pot and places it on the Lion's head as a crown. In the wide shot, the Tin Man's hand is still on the crown, but when it cuts to a closeup of the Lion the Tin Man's hand is suddenly gone. (01:06:00)
Continuity mistake: When Glinda tells Dorothy to follow the yellow brick road, there are many Munchkins around. A second later, when she is about to vanish, they've all disappeared.
Revealing mistake: After the Wicked Witch throws fire down at them the Scarecrow kicks the stump next to him and it moves several times. The one behind him also moves. (00:46:25)
Continuity mistake: When Dorothy is walking on the pig sty platform and talking to Zeke, he is pouring the pig feed into something. The amount of feed he is pouring changes between shots. (00:04:00)
Continuity mistake: When Glinda starts singing, "Come out, Come out" she's not on the Yellow Brick Road. In the next shot she is. (00:22:55)
Visible crew/equipment: Dorothy's bedroom window flies open in the tornado and the shadow of a crew member is moving on the wall on the right of the screen. (00:17:00)
Continuity mistake: When Dorothy comes running into the farm at the beginning of the movie, there's a lone cow in the pen behind her and a couple of white chickens that she ends up chasing in the direction of the camera as she runs near the house. Two shots later the cow disappears and the white chickens are now in the pen. (00:02:55)
Audio problem: The Tin Man crowns the Cowardly Lion and he lip-synchs "Monarch of all I survey." His mouth doesn't move as he sings the word "Monarch." (01:05:55)
Continuity mistake: The large pile of wood next to the house is entirely rearranged throughout the scene when the Wicked Witch throws fire down at them. (00:45:55 - 00:47:30)
Continuity mistake: After the Wicked Witch turns the hourglass over and leaves, Dorothy walks back towards her throne. If you look closely the book of spells, which has not been touched, is open to an entirely different page then when we saw it earlier in the scene. (01:18:15)
Continuity mistake: In the scene where Dorothy meets the Scarecrow, there are no pumpkins on the ground while the Scarecrow is tied to the pole. After Dorothy gets him down, pumpkins are then everywhere behind the place that he fell. (00:34:00 - 00:35:45)
Revealing mistake: The candles on the chandelier that fall on the guards are not real. If you look closely at them they're operated with gas. (01:24:50)
Continuity mistake: We see a Munchkin in a blue shirt climbing out of a manhole in the middle of the Yellow Brick Road and he has a prominent red scarf on. The wardrobe Continuity Person goofs because whenever we see him again, as in a glimpse in the very next shot and when Dorothy leaves Munchkin Land, the red scarf is gone. (00:23:20 - 00:33:25)
Continuity mistake: In the scene when they discover the Wizard behind the curtain there is a change in the equipment on his wall. At first the big lit up gauge thing with the two levers above it is lit, about a minute later when the Scarecrow gets his diploma the angle has changed and the gauge thing is dark. (01:28:55 - 01:29:55)
Continuity mistake: When Dorothy walks up to the talking apple tree his arms are spread wide apart. In the next shot his left hand is pointing at the apple she picks. (00:39:30)
Continuity mistake: After they enter Oz the collar and scarf of the driver of the horse drawn carriage change between shots without being touched. (01:00:05)
Continuity mistake: When they return to the Wizard with the Witch's broomstick they're standing in front of him in the dark. In the next shot they're in the light. (01:27:30)
Factual error: If somebody fell into a pigsty, like Dorothy did, they would emerge covered in muck, but Dorothy emerges completely clean.
Continuity mistake: When the Witch melts, four guards suddenly appear behind her remains.
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.