In the end of Illusionist, when the boy gives the bundle of files to Inspector Uhl, he starts getting flashbacks of the duchess and what Eisenheim actually did.
Are those flashbacks really what happened or is he getting crazy because of the confusing nature of the plot?
And if those flashbacks are not true, then does that mean the duchess really died?
They are really what happened, they are presented in this manner to show that the inspector is putting the pieces together.
It is a twist ending that Sophie's death was faked to frame Leopold.
From Wikipedia:
As Uhl leaves the Imperial Palace, a boy runs up to hand him a folio explaining one of Eisenheim's magic tricks. Uhl demands to know where the child obtained the folio; the child reveals that Eisenheim had given it to him. Uhl then reaches down into his pocket, to discover that he has been pick-pocketed by a disguised Eisenheim, while distracted by the boy, and gives chase following him to the train station. As the train leaves, a montage shows Uhl putting the pieces together in his mind and discovering how Eisenheim faked Sophie's death and framed Leopold for the murder. Eisenheim is then seen walking up to a house in the country where Sophie is waiting for him.
"was Inspector Uhl actually crazy?",
No.The Inspector Uhl wasn't crazy.The actual reason of Uhl's delighted belly laugh was his dawning understanding of the final illusion done by Eisenheim(he has been pick-pocketed) and further he realized Sophie wasn't died.
Those flashbacks are true?
Certainly, the flashbacks were true.Because, in the end of the movie Sophie were rejoined with Eisenheim as Eisenheim promised to sophie when they were kids.
Sophie: Do you promise you'll take me with you?
Eisenheim: One day i will.
Sophie:One day we'll run away together.We'll disappear.
