There was no reality! (spoiler)
The entire movie takes place inside the head of Fred Madison, there is no reality.
Facts :
1. Fred Madison is sentenced to death by electric chair.
2. Fred Madison killed his wife Renee.
3. He didn't kill Dick Laurant/Mr Eddy.
4. He didn't kill Andy.
The first sequence about Fred's life is just a flashback of the memory he has in his brain. It was not real. When a person dies, his entire life comes into his mind as a series of images. Which is the key fact here.
** The moment when Fred starts to morph into Pete Dayton is the first time he was given electric shock.
**He did not die by the first wave of electric shocks. That's why he was given another shock which was lethal & that's the point of ending you see him morphing violently.
While the first sequence of the movie was a memory flashback, the second sequence was imagination created by his mind because of his guilt killing his wife & not the real culprits - Dick & Andy. The reason he is seeing Dick & Andy dead because in reality he couldn't harm them for cheating with his wife Renee.
There was no reality except a few minutes of scene (the interrogation & punch scene & at jail).
Skynet's New plan revealed! - http://imgur.com/OcYhgvS