It seemed obvious to me the The Babadook was first created in the slightly disturbed mind of the son. It was no more than the ordinary "monster under the bed" that many kids see in their imagination, his reaction was stronger because he is messed up by his father's death. His mother's slow slide into insanity simply ran with it. She created the book (her former profession) and "saw" the crazy things that happened around her, feeding her son's already fertile imagination with her craziness. The book was only half finished with blank pages when she first read it. After it was torn up and mysteriously taped back together it had been finished (both by her). She even had black ink on her hands when she reported it to the police. The end simply represented her own way to come to grips with her insanity of wanting to kill her child.

Acceptance and additional trauma fixes bad behavior

I saw The Babadook as a manifestation of the mother's guilt over blaming her son for the death of her husband. The final scene was to show that she has now taken control of it. She has accepted that it's there and decided to acknowledge the feelings in order to try and live with it.

The kid was so fucking annoying I was rooting for the Babadook almost from frame 1

The "Home Alone" sequences were hilariously cringe-worthy.

the film transitioned from the Babadook being an outside threat to the mom being 'possessed'. It felt too abrupt and zapped some of the tension for me. I think it would have worked better if there was some overlap and one aspect slowly dissolved into the other. I guess I just think they played their cards a bit too early in revealing Mom as clearly violent.