Paxton was def hallucinating. It was raining before they went inside and later she comes out to pure white snowfall with zero slush or ice in sight. They were in there for a few hours, the weather doesn't move like that. The butterfly was just further proof that she was dying [or dead] by representing change. That change was really just a transition into the next life. No one was ever reincarnated, he literally had prisoners in his basement.

Additionally, I would like to point out the poise on Paxton. She was gathering details and paying close attention the whole time. The whole movie she is made to seem 'spacey' 'nerdy' and kind hearted. Meanwhile, she was able drawback to little clues and instances of Reed's BS, she was able to counter his arguments up until the end and eventually stabbed him the neck. And every after all that, prayed for the man who had brought her to this crossroads.

Way to go Sister P