Dumbo sees all this stuff because he is drunk, yet since most children have never been drunk yet they haven't got a clue what's going on? This makes it even worse because children are usually scared of things they don't understand. If children can relate to it all: it might be because it resembles the fever dreams they might have had when they were ill.
All the elephants are white and haven't got any pupils, causing them to resemble ghosts.
The elephants take on all kinds of bizarre and physically impossible shapes. Hopping over each other, walking into each other, changing color, growing and shrinking, floating in the air, walking upside down, changing into cars and other vehicles,...
One of them is a Combining Mecha made of nothing but elephant heads who walks towards the viewer. Many kids have jumped away in fear when they saw that thing coming near.
The scene where the elephants walk upside down on the ceiling, while another elephant sees them from his bed and then hides himself beneath the blanket from fear. This is one thing many kids did after watching this movie.
After the belly dancing elephant dissolves an eye appears in the middle of the screen, staring back at you. It's the only non-elephant appearing on screen in the entire segment.
The music is very creepy as well. But the lyrics, oh boy: "Chase 'em away! Chase 'em away! I'm afraid! Need your aid! Pink Elephants on Parade!"