Is confinement literal or a state of mind in One Flew Over the Cuckoo's Nest?

I suppose it can be both. In the context of the novel, these men were literally confined as a result of their state of mind. One of the running themes in the story is the symbiotic (mutual balance) between physical and mental incarceration. Nurse Ratched makes sure the men's experience mirrors whatever nightmare they have going on in their minds.