Ned's nightmare themselves. Of course they're only his overactive imagination, but when the point of how realistic and how graphic they are is taken into consideration, along with how any child would be able to imagine such things like the mad world of the Attic, Basement, and Beyond, and the psycho organ transplant operation.
Each of Ned's nightmares in the game have to deal with Ned's own fears.
The graveyard deals with necrophobia, the fear of death, and as such the shadow for this nightmare is based on the Grim Reaper, Death itself, and he turns out to be Ned's grandfather, who is at an old age and closer to dying than Ned's immediate family.
The medical nightmare deals with emetophobia, the fear of illness. It gets ironic that the shadow that acts like a Depraved Dentist is actually a kind physician.
The school nightmare deals with didaskaleinophobia, the fear of going to school. While this may be a silly idea, children dislike going to school as they feel unsafe outside of the comfort of their own home. Similarly, school is also the place where they meet the most unlikely of friends, such as Billy Blatfield, the true form of the shadow.
The bathroom nightmare deals with the dangers within our own home, such as drowning, electrocution, and vermin. It also deals with the fear of puberty, as the reflections jokingly taunt Ned with.
The nightmare in the Attic, Basement, and Beyond deals with primal fears such as claustrophobia, scotophobia (fear of the dark), and the fear of the unknown.
The nightmare creature in the game's intro and good ending represents Ned's dark side, and must be overcome in order to wake up.