Did Sweet Pea Escape?

Paradise. There are a number of clues throughout Sucker Punch to support both the interpretation that this is all happening inside one girl's head and the interpretation that Sweet Pea really did physically escape the asylum and is on her way to freedom.

What happens to babydoll at the end?

Baby Doll receives the lobotomy, and her last shot at survival is to retreat into her mind where she creates Sweet Pea, the sexy, confident dancer. The rest of the film only covers a few seconds in real life, the small amount of time it takes to perform a lobotomy.

What happened to Babydolls sister?

Scared at seeing Babydoll with a gun, he tried to reason with her, but she fired one round that barely clipped his left arm. She fired again, the bullet piercing his flesh, but the bullet ricocheted, hit a steam pipe, shattered a lightbulb, and then fatally struck her little sister.