I really loved Paprika, but I ended up sort of confused by it.
During the course of the film,
the dreams break through into reality.
My question is, was it just a mass hallucination, or was it real?
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It was real. We don't get to see exactly when the dreams and reality are merging, at the end of the movie:
Dreams and reality are one and the same because the DC minis have broken down the barrier (and is missing user control interfaces) between the worlds. Therefore everything that exists in the dreamsphere co-exists in the real world, and vice-versa. This is proven by the fact that the buildings all take permanent damage by the dream-creatures.
