I am going to provide a brief synopsis of my take on what the realities in Silent Hill really are. Not so much what they represent, most of us know that, but how real they really are, for instance. If you don't want to get bogged down in my details, please skip to the the very bottom of this post where I start by saying: "Lastly: This is taken from the..." That is the gist of what I am trying to discuss.
My take on the reality of Silent Hill, as it pertains to peoples' realities once they arrive in the town(such as James' and Angelas' realities with monsters, etc.) is as follows:
There is Silent Hill, the normal town(normal can be taken to be subjective, since all things are relative in essence), with its particular history. Anyone walking through the town will see it as just a normal town, but with lots of fog(it appears that fog is part of Silent Hill's normal environment, if I am not mistaken). Since the town had its violent suppression of the indians in the past, this acted as a catalyst that altered the town in such a way as happened so that the events unfolding in the Silent Hill series occur. This last statement is taken from what is stated on this site:
http://silenthillchronicle.net/uknotes.htm. This catalyst(with the existing presence of this sacred or ritualistic element to the land regarded by the natives) would be what caused the town to go 'alternate,' so to speak. When people are 'brought' to the town, what they experience is what is really there, in so much as the town really exists at all in the first place. Perception of objects comes from our minds, since it is our mind that translates 'codes' into what we see as images and our surroundings in general. If what is in our mind determines what we see 'out there,' who is to say everyone's perception is to be the same? Hence the creatures that James, Eddie, and Angela all see, while being the same creatures(since they are in the same place; ie, both Angela and James notice the creature in the secret room in the labyrinth) taking up the same space at the same time, are different relative to the perspectives of the observers(in this case, Angela, Eddie, and James, as well as anyone else there). In other words, if we were there with James and Angela, provided we had a dark secret or something as well, we would see this same creature that they see(although to them it is manifested differently), but in a different form or shape to model our own psyche. In essense, the creatures are there, but their shape/form is different for different people, which would explain why Angela and James both see something, even if what they see appear differently to one another.
The conclusion I am trying to state is:
Since what we see in real life is but a translation given to us by our minds, then who is to say that the realities of James or Angela during their 'other world' visits in Silent Hill are any less real than anything else? Just because it is different to them alone, and not a lot of people, does not mean that the nature of their reality does not have the effect that our own realites have on us. This would mean that while the nurses in the hospital are not really there to us, they still cause physical harm to James, even if through his own psyche, and in a sense, realities such as those of James and those of ours outside of Silent Hill are merely different dream states, so to speak. Consider them realities within realities if you will. And consider further a dream you might have had where you were so sure the dream was real life until you woke from it in your bed. Then you might have looked around having to cope with the fact that what you were so certain was your life was merely but a dream. And why should we assume our waking state is that much different from our dreamstate, considering that they both project from our minds, and to boot, the interactions in Silent Hill are more profound than any dreams we can have, since actual physical harm can come from contact between James and the monsters in his reality, lending credence to the notion that his reality, while not the universally accepted reality, is more real than we might initially give credit for. Hence, we should not merely discount his reality as just his imagination, which only detracts from the depth of meaning in Silent Hill. Of course, he is dellusional, but I still consider the reality he encounters in Silent Hill to be existent for us outside of Silent Hill as well, just that he experiences it 'differently.' Either way, the events in Silent Hill do take place in our reality, not just his. This would be why Angela and James both see the same creature(except with different shape and form) occupying the same space and time, which would otherwise be impossible if it was all in their heads. How could they see things at the same time in the same place otherwise? It is the town that connects everything together, no doubt, and while there may be different perceptions for different people, it all ties into the same thing in one place and time, as far as I'm concerned. This would be how James notices the year old cans of food in the hotel that had burnt down a year ago, etc., etc.
Lastly:
This is taken from the same site as above, but anothe section, in the Q&A sections...
"Silent Hill is a town where nightmares become reality..." This would seem to affirm my belief as stated above, that what happens to be peolple's nightmares become reality. Reality is the key word there. Whether other people experience that reality is not so much the point here, since all perception is relative. If you feel that reality is when more than one person experiences the same thing or sees the same object, than consider when Angela and James both see abstract daddy in her rape room in the labyrinth, although to each of them the same creature(or object) looks different based on their own psyches.
This above is, of course, just my own interpretation. Part of the intrigue of Silent Hill is that, like in our own experience, reality is more of a subjective faculty than an objective one, regardless of whether or not people want to believe otherwise.