Unlike most "it was all a dream" tropes, "Normal Again" refuses to provide a definitive answer. Buffy is torn between a world of pain, duty, and death (Sunnydale) and a world of recovery, family, and "normality" (the institution).
Her mother, Joyce, is alive and well, providing a heartbreakingly tempting alternative to Buffy’s grueling life in Sunnydale. A Battle for Reality [S6E17] Normal Again
Friends like Willow and Xander are reimagined as people she incorporated into her dream world. Unlike most "it was all a dream" tropes,