But first, you should stop reading right now if you mean to watch it. I'm going to give the story away.
I have always felt a visceral anger when a story ends as if the events were just a dream or some variant thereof such as drug trips, a book that someone was reading, or near-death experiences. The reader agrees to accept this fictional "reality", he invests his emotions in it, then the writer says, "Just kidding. None of this actually happened." Now the reader is expected to feel foolish, maybe blush a bit, and wonder if anyone noticed that he was reading a silly fantasy. Not me. I feel anger.
Pan's Labyrinth does not end with such obvious chicanery as waking up from a dream, but it does commit the same sin. And yes, I mean sin. I feel that strongly about it.
Keep in mind that I don't believe in magic, so why should I care whether the events in some fantastic story actually happened or not? Shouldn't I be comforted in my world view when I'm reminded that those silly fairies and fauns are just make-believe (or at least probably make-believe)?
No, and absolutely no!
Consider the kind of narrative trickery found in Pan's Labyrinth:
Right up to the story's end, the innocent Ofelia appeared to have a fighting chance of gaining the upper hand over malevolence. In fact, success was promised to her, so long as she took certain actions. Even at the very end, despite the appearance of Ofelia's death, the viewer suspects that the girl's moral purity will permit her to somehow gain magical power—as promised!—and become triumphant. However, the filmmaker doesn't see the world that way. It's not merely that he needed to apologize for the silliness of the fantasy; in fact, he used the fantasy to emphasize, or heighten, a point that he wished to make about the nature of the world as he sees it. To that end, he made the innocent girl's triumph a trick of the mind.
This is worse than a story about hopeless innocence; this is a story about hopeful innocence, about a hero being promised a reason to battle for success, then having that very reason to hope—not merely the likelihood of success, mind you, but even the meaning of hope itself—snatched away by "reality".
The best we can hope for in this terrible life, Guillermo tells us, is to never wake up from our daydream to discover how bad it really is here before we die. Benevolence reigns only over the childish, make-believe mind; malevolence, everywhere else.
Ironically, this is what the word realism in the term magical realism means. Had the young girl been permitted to actually be a real princess—I mean really be—then benevolence would have won the day—and it never does, at least not according to a postmodern mind.
In the author's own words:
Fantasy is not an escape for Ofelia but it is a dark refuge.
Rot in hell, Guillermo del Toro.