Granny can subconsciously recognize that what is happening is abnormal and that the Rabbit needs to be stopped, which is represented by the freedom-fighter plants and other characters that are opposed to him. The Rabbit wants to eat/kill the plants because they are her last line of sanity and good cognition, re-enforced by the fact that they resemble neurons and communicate with one-another similarly.
Granny begins reasonably sane in the introduction as we witness her family and neighbourhood, albeit with some of her hallucinations such as the trumpet elephant and levitating street, after which the Rabbit arrives and the events of the game commence.
Towards the end of the game is when Granny unwittingly succumbs to her insanity, particularly when she meets the 'Rabbit' in his office.
The Rabbit that Granny meets, as he says himself, is literally "not a rabbit": he isn't the real Rabbit (I.E. dementia)that she is dealing with. The Rabbit says to some unknown entity that 'we' had a problem with her, before beginning to sing about how he's a pretty rabbit and in love with himself: this is him updating the real Rabbit on the situation of Granny before making an attempt at impersonating him. The fake Rabbit or Hippo is a fake resolution to Granny's insanity, misleading her to think that she's succeeded when the true Rabbit is still alive.
After Hippo's monologue, the strange IQ meter in the background will go back up to full: this usually happens when the Rabbit wins somehow. The final scene is Granny and her family entering the Rabbit's mouth in the car, whose face is embedded into the landscape and laughs afterwards: Granny is consumed by her own dementia, and his laughter is an acknowledgement that his plan has succeeded.
