My previous post suggests the hole in the page is a blindspot, like a flash-spot in the eye. The flash-spot happens when the light-sensitive rods in the eye get temporarily overwhelmed by light that's too strong (a camera flash, a reflection off a car windshield). That seems like a good way of representing madness, when the psyche is overwhelmed.
Stephen King talks about the "hole in the paper" in Misery, only for him it means the writer is in the zone. This doesn't preclude madness, and I don't believe King thinks so either. When the writer, Paul Sheldon, sees the hole in the paper he forgets he's writing. Specifically he forgets words and the technologies used to produce them (Annie Wilkes's crappy typewriter) and sees only his characters in action. That's also Paul's and King's hope for their readers, that they will not even be conscious of the physical words or the writer's deployment of them, and instead see--at a later time--exactly what the writer saw through the hole.
But because Annie makes Paul write on a bad typewriter (and also maims his hand) it's harder to see through the paper. Writing becomes more obviously a physical chore, and when the typewriter throws its "n" key, Annie fills in the "n's." In other words, she inserts herself ("n" sounds like "Ann," unfortunately for me, and unfortunately too because deconstruction is out). Instead of the madness of the writer's brain firing on all cylinders, Paul sees Annie's disgusting body when he writes. For King these are two sides of the same coin, I think.