Continuity mistake: In the start of the movie, depending on the scene, the words on the bus change between "schoolbus" and "school bus".
Continuity mistake: After Schneider is tied to the showers he is stripped and we see him being smacked with towels across his bare butt. When the last towel hits him there is shot of him writhing in pain and he's still wearing the black leather pants he had on earlier.
Continuity mistake: When the two boys are told to assume the position, the amount of grass on their tops changes between camera angles.
Answer: He's a dream demon and uses his powers to torment Jesse in any way he could, including having claws or even Freddy himself burst out of Jesse.
Erik M.