Here are my thoughts on what happened.
They all died at various times, for example: Jack died right then and there on the island from his stab wound, while someone like Claire could have died 50 years in the future, we are not sure and it does not matter. We can assume that Claire, Lepidus(pilot), and the others on the plane all escaped the island, but lived their lives and died at some time in the future.
The whole alternate time lime was actually all of those people in a place after death that they created subconsciously so they could find each other when dead. The island had brought all of them together and they waited for each other in "heaven". Desmond was the first one to experience his "connection". He then knew what hap happened in his past and knew that he had to find all of the people he saw and remembered and make sure they have their connection also. This was how they all subconsciously set up this "heaven" to find each other.
Their experiences on the island were real and so was when they left then returned. Locke was dead when Ben strangled him awhile ago, but we an assume that Hurley and Ben protected the island for a long period of time, I like to think for hundreds of years because Hurley told Ben he was a good number 2 before they all met in the church. Everyone ultimately found each other in their version of heaven and they were all happy to be with the ones that they shared the most important moments of their lives with.
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