As a 14 year old, I didn't know what to make of New Nightmare (or Wes Craven's New Nightmare, as Craven himself refers to it - hope this doesn't screw up the Daily Trailer alphabet!) the first time around, as I thought it was a movie about Freddy haunting a movie set and going after Wes Craven, Heather Langenkamp, even Robert Englund. But that's actually just the first scene of the movie, which is a dream anyway. The trailer certainly doesn't help, focusing on black and white footage (none of which is in the movie) and making it look more like a documentary, and not even showing Freddy at all.
The actual movie is more original, focusing on Langenkamp (as herself, but with a fictional family that includes Pet Sematary's creepy Miko Hughes as her son) struggling with the return of a real life stalker as well as the potential of a new Elm Street film. Despite killing Freddy off with Freddy's Dead, Bob Shaye (as himself! This movie's so "inside baseball") tells us that the fans are demanding more, and that Wes has agreed to return to write/direct a new sequel. So it's easy to imagine that this was a pre-Adaptation sort of thing, where New Line really DID throw money at Wes for a new Freddy movie and he couldn't crack it, but came up with this instead.
Thus, it barely even qualifies as a sequel. Freddy doesn't cause as much carnage as the film's frequent earthquakes (they strike so often it's borderline offensive to Earth), with only two on-screen Freddy kills and Englund appearing as himself more often than Krueger. But it's certainly an interesting concept; I love the idea of the Nightmare series as we know it being just the latest in a long line of vessels that serve to contain an evil entity, and thus that evil has been set free because of the series' seeming conclusion. And I don't know how realistic it is, but I quite enjoy the idea that John Saxon has retained his paternal role for Langenkamp, going with her when she takes her kid to the park and such. Speaking of which, after a couple of viewings I noticed that while a bunch of the folks in the movie play themselves, the only people that die in the movie are fictional characters; it certainly sounded cool at the time, but a movie with Freddy "killing" Robert Englund and making jokes about how Hollywood is scarier than he is would probably get obnoxious, fast. This scenario has probably helped the film get a little more love over the years, especially in the Craven canon as it was the last movie he wrote until My Soul To Take, which was mangled by the studio.
Final note - the novelization for the movie played up the meta stuff, with the author talking about how he was hired to write the novelization, and if memory serves he dies at the end. Cool stuff, and another reason I miss the popularity of novelizations.