The film was just a dream of an unseen character.
- The ending of Freddy's Revenge was much like the ending of the original, trying to throw the events of the whole movie into question. However, in Dream Warriors, we find that the ending of part 1 WAS just a dream, and the events of the movie (as in, all of the deaths) happened as seen. Freddy's Revenge is never mentioned in the series again outside of clips of the credits to Freddy's Dead and the opening to Freddy vs Jason. That's because the events of Freddy's Revenge were just a multi-layered nightmare by an unknown character who may or may not be Jesse. My theory is that it was actually a kid in Westin Hills.
- This would explain the timeline errors the movie causes (being set 4-5 years after the first movie, but the rest of the movies coming out in the year it was made with no reference to any of the events or characters in 2, even though the events 1,3, and 4 are mentioned in each successive movie with 5 referencing all of them even if just in passing..except for part 2). SOMEONE would have heard and known about what happened in part 2. Characters in 5 know the events of the other movies even when not connected in anyway. That's because it was a Freddy nightmare that Freddy wasn't involved in personally.
- This would explain why Freddy does so many things unique to that movie (possessing someone to come into the real world (at least 3 different times)), the bizarre and improbable dream-like state of the "real world" (such as exploding birds, a bolt of lightning striking his toaster, the heat in his house being so high that things in his room are actually melting despite the heater and gas being disconnected), or how Jesse could be alive in the same scene after Freddy shreds him apart to enter the real world. It's all just a dream from a kid whose hypnocil dosage isn't high enough, but Freddy was occupied doing other things.
- Better yet: it's the dream of one of the two "teen suicides" mentioned as having recently occurred by characters and news reports early in Dream Warriors. Maybe even both of them, if the events up until Jesse's possession were Jesse's nightmare, and the subsequent massacre and confrontation were Lisa's.
