Continuity mistake: When Dorothy, Tin Man, Scarecrow, and Lion are confronting the Wizard behind the curtain, as the Wizard tells Scarecrow that anybody can have a brain, suddenly there are a bunch of flowers (they're not Dorothy's flowers from Munchkinland) set on top of the Wizard's machine. There is no explanation, and you can't see anyone placing them there. (01:28:45 - 01:29:30)
Continuity mistake: When Dorothy is at the end of the movie confronting the Wizard about going home, after Toto opens the curtain Dorothy goes over there and automatically has him in her arms - she didn't bend down and pick Toto up. (01:28:55)
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: In the scene where the Wizard is about to bestow 'awards', the Scarecrow is lined up second from the left as the Wizard begins to speak. In the next shot while the Wizard is still speaking, the Scarecrow 'jumps' to the far right. (01:29:10)
Continuity mistake: Talking to the Wizard the Scarecrow says, "What about the heart you promised Tin Man " and the position of the characters changes between shots. (01:29:15)
Continuity mistake: There is a multicolored bag on the floor, to the left of Dorothy, when they're speaking to the Wizard and he says, "Anybody can have a brain" that was not there when she pulled the curtain open. (01:29:25)
Continuity mistake: The Wizard gives the Scarecrow his diploma and he unfurls it. In the next shot as he recites the Pythagorean theorem it's rolled up again. (01:30:05)
Continuity mistake: After the Scarecrow gets his diploma he says, "How can I ever thank you enough" and the diploma is near his face. In the next shot it's at his side. (01:30:15)
Continuity mistake: The Wizard holds the Lion's medal in his left hand when he takes it out of the bag. In the next shot it's in his right. (01:30:50)
Visible crew/equipment: Near the end of the movie, Dorothy says to the Wizard, "Oh, will you? Could you?" and the cameraman's shadow is seen on her dress. (01:32:35)
Continuity mistake: The Scarecrow is on the left of the Wizard's balloon as he says, "To confer, converse...". In the next shot he's on the right. (01:34:15)
Continuity mistake: As they stand in the Wizard's balloon, Toto is looking at the Cowardly Lion. In the next shot he's growling at a cat. (01:34:45)
Continuity mistake: As he holds the Wizard's balloon, the Tin Man has his heart shaped clock attached to his chest at the sixth rivet. The next time we see him several seconds later it's attached to the third rivet. (01:34:50)
Continuity mistake: At the end when the Wizard and Dorothy are in the balloon basket, the tie down ropes on the right side keep going from tied to untied and back to tied again through different shots. (01:34:55)
Continuity mistake: The Wizard shouts, "I can't come back I don't know how it works" and the Scarecrow is on Dorothy's left. In the next shot he's on her right. (01:35:10)
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: When Glinda walks up the steps to greet Dorothy and the rest the floor can be seen and it's quite dirty. Later when Dorothy taps her heels together the same floor has been cleaned and shined. (01:36:15 - 01:38:40)
Continuity mistake: Dorothy says to the Good Witch, "Will you help me? Can you help me?" and Toto goes from facing the camera to facing the other way between shots. (01:36:25)
Continuity mistake: Before she sends her back to Kansas, Glinda's wand is pointing at Dorothy's feet. In the next shot when she says, "Toto too" the wand is in her left hand. (01:37:15)
Continuity mistake: Near the end of the movie, when Dorothy is saying good-bye to the Scarecrow, he is looking at Dorothy and begins to wave good-bye. In the next shot, his head is down and he lifts it slowly and begins to wave. (01:38:30)
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.