Okay, it's probably not relevant anymore but, what I understood was that there was the reality(asylum), then the alternate reality which I think is kind of Baby Doll's way of interpreting the reality (probably why she is in a brothel) and the second alternate reality which would be her way of empowering herself, having control over her world. Carla Gugino tells her, before her first dance, that she has to "fight" so it's like she is picturing herself kicking ass instead of dancing for customers and whatnot.
So yep.. That's what I got from it.
