Why is the yellow wallpaper making the narrator in "The Yellow Wallpaper" hallucinate? What is her state of mind?

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When the narrator in "The Yellow Wallpaper" first arrives at the rented country home with a prescription to "rest," it is because her husband has determined she has a "temporary nervous depression--a slight hysterical tendency," and that she is not truly physically sick.  Today, we would recognize her condition as post-partum depression, and she would most likely be prescribed a mood enhancing drug of some sort.  At this time, however, she is told simply to put her mind at ease, stay indoors in bed, and do nothing that requires physical or mental exertion. 

Her husband determines that this "rest" in the country house should occur in an old nursery with bars on the windows and deteriorating yellow wallpaper, which the narrator immediately abhors.  She writes:

The color is repellent, almost revolting; a smouldering unclean yellow, strangely faded by the slow-turning sunlight. It is a dull yet lurid orange in some places, a sickly sulphur tint in others.  No wonder the children hated it! I should hate it myself if I had to live in this room long.

As she spends more and more time in the room, the wallpaper begins to have its effect on her.  With nothing else to occupy her mind, she quickly becomes fixated on the wallpaper's pattern:

There is a recurrent spot where the pattern lolls like a broken neck and two bulbous eyes stare at you upside down.  I get positively angry with the impertinence of it and the everlastingness. Up and down and sideways they crawl, and those absurd, unblinking eyes are everywhere

Soon, she begins to see something else:

I can see a strange, provoking, formless sort of figure, that seems to skulk about behind that silly and conspicuous front design.

It is this figure that becomes her obsession.  Every day, she stares at the wallpaper, trying to find its secrets.  She recognizes that this is not healthy and begs her husband to let her out of this room, to leave the country home early - she even expresses her concern to him that, while she may be getting better physically, she believes her mind is starting to go.  He laughs at her silly fancies, ignoring her concerns to both of their detriment.

As days go by, the figure in the wallpaper becomes more distinct, and the narrator believes "it is like a woman stooping down and creeping about behind that pattern," and she believes "the faint figure behind seem(s) to shake the pattern, just as if she want(s) to get out."

The narrator's subconscious desires are clearly taking form in what she sees in the wallpaper, and soon she resolves to help this woman who is stuck in the wallpaper, for she is ...

all the time trying to climb through. But nobody could climb through that pattern--it strangles so; I think that is why it has so many heads.  They get through, and then the pattern strangles them off and turns them upside down, and makes their eyes white!  If those heads were covered or taken off it would not be half so bad.

In the end, her husband opens the door to the room to find his wife has gone insane.  She has torn all the wallpaper off the walls and is creeping around the room as she shouts at him:

"I've got out at last ... in spite of you and Jane. And I've pulled off most of the paper, so you can't put me back!"

Her husband's unresponsiveness to his wife's true needs and concerns ultimately lead to a condition for his wife far worse than "a temporary nervous depression."

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