I assumed that she died. After the creature takes her into the water, we get the narrator talking again, basically saying what he likes to think happened. I assumed we were watching what the narrator choose to believe so that he could be happy and hopeful, for that fairy tale ending. Very similar to tone of the ending of Pans Labyrinth, was it all a fairy tell, or was it real and people are dead?
So, after looking at discussions online, the opening scene of her sleeping, and dreaming of floating underwater, coupled with her masturbating in the tub, the scene of her apparently magic-ing the raindrops on the bus window, her history of being found by a river with slices in her neck... all point to her being a fish person, or possibly a half fish person. That another fish person and a human possibly had a baby, humans found it and stitched its gills up. So, she was a monster too the entire time. And at the end, she heals/he heals her, and the scars over her gills heal as well.. and shes a half breed again.
Which, ok, I mean, that's the fairy tale ending, and yeah, its possible that was the intent. I personally like it better to assume that she died, and we see the fairy tale ending because that's the dreamers ending, not the actual truth that the world is not full of happy endings. I don't know, maybe I like the ending because it can be ambiguous?