Visible crew/equipment: In the scene where Freddy's head is torn, if you play it slowly, you can see a sleeve and wrist coming out of the wall behind Freddy and pull the prosthetic head back. (01:20:50)
Continuity mistake: When Kincaid falls backward out of the chair we see his dog sticking its head out under the bed. When it cuts to Kincaid falling through the wall, the dog isn't under the bed. (00:05:20)
Continuity mistake: When Alice is in the cinema she has a drink of coke. The Coke has a plastic lid on it. But when Alice turns around to investigate the strong winds, there is no plastic lid on the Coke. Then in the next shot the plastic lid is back on it. (01:01:10)
Continuity mistake: When Freddy is reaching out to take Sheila's glasses off, you can see that the palm and index finger of his hand aren't scarred at all from what was supposed to be an all-consuming fire. (00:43:55)
Plot hole: Freddy is killed at the end because he sees his own reflection in a mirror, which causes the souls in his body to revolt and kill him. But this weakness to mirrors and reflections doesn't fit in any other film of the series. He repeatedly appears in mirrors in the other films, and in the climax of "Dream Warriors," he even appears in a hallway of mirrors that are facing each other, where he would have seen his own reflection multiple times. No matter how you slice it, his death in this movie doesn't add up in the overall context of the series.
Continuity mistake: When Dan is talking to Alice there is a piece of paper in front of him on the table. In the next shot it's gone. (00:47:40)
Visible crew/equipment: After Freddy 'sucks' Sheila, Freddy says "You flunked", then it cuts to Alice trying to get out from her desk. Under her desk you can see someones fingers briefly. (00:44:25)
Continuity mistake: When Dan is wheeled into the operating room, we hear a respirator machine going in the background. Yet he's fully awake and not hooked up to any breathing equipment when he's being brought in. A machine would not be going like that unless the patient was fully under and intubated.
Continuity mistake: When Kincaid's dog is getting ready to pee it has its tail between its legs. When it cuts to the fake dog peeing flames, the tail is standing up. (00:15:40)
Revealing mistake: After the truck has its collision with nothing, the chain yanking it backwards is visible. (01:09:00)
Revealing mistake: During Rick's nightmare, we can see the fake reflection trick in action when Kristen is taunting him in the mirror. When she turns around, the actor playing her reflection turns out of sync, and brings the wrong hand up to her mouth. (00:53:13)
Other mistake: The 3rd movie takes place 5 years after the original, since Kristen is still in high school this one can't take place too long after that. How does Nancy's house get so run down in only 5 or 6 years?
Continuity mistake: The hole in the roof which Kristen makes when she falls through the roof changes size between the shots. (00:35:05)
Answer: As Kristin was being burned to death in the boiler, she passed her ability to pull other people into her dreams to Alice. This enabled Freddy to get new victims.