If you need an easy interpretation
This is for those who have seen the movie and not planning to view it again or give another thought.
Well this movie(after the 1st weird/lynch moment) is in whole a dream or hallucination of Fred inside the cell,after he takes the medication for headache.for your easement here are my points:
1.Fred is schizophrenic,his jealous,irrational and dark side is seen in the night of murder.
2.His dark side is very playful too he is the one hiring the MYSTERY man for surveillance on his wife,but his other side doesn't remember the mystery man.We know mystery man is his helper from last scene when he helps him kill Eddy.
3.ENDING SHOT of his head getting distorted and his cry of pain,means his hallucination/dream which he is having inside the prison is ending.
4.Pete:He is Fred's projection of sexually satisfying person/real mechanic stud, as we
are all aware of Fred's impotence from the earlier scene.And he gets to have so much
sex in his hallucination.And easily attracts Alice.
5.He hates Andy guy so kills him in his dream.
6.IMPORTANT POINT:Remember Pete's character
character regularly sees thing out of focus
or blurring as if things were not real in his world.This may be due to Fred's attempt to get out of the dream.
7.From the beginning he tries to figure out Dick Laurent and he makes him exactly what
he thinks Andy's friends would be.
8.Renee:He imagines there is two side to her .One is quiet housewife(seen in 1st half of the movie) and another is the wilder type projected in form of Alice,who is dissatisfied with her sexual life wi th him.So in his imagination Alice gets to have plenty of sex (including pornos) also after sex in the desert she says to Fred "you'll never have me".
9.jazz playing in the garage is actually playing in his head.
10)..........(for your addition to my theory)
SO this theory may look amateur but is the easiest way to avoid your headache and save some time.