How do I restore /Applications
OK - this is an odd one. The most straightforward solution would be to use Time Machine to restore /Applications from the backup prior to it becoming marked as a package and not as a folder.

Barring that, You will need to boot into single user mode and delete /Application/Contents and perhaps some other files (it's hard to know what exactly else got messed up) by mounting the filesystem in read/write mode.

 /sbin/mount -uw /
 rm -rf /Applications/Contents
 # and optionally
 mv /Applications /badApplication_package


Alternatively, you could try rebooting with Command R and just reinstalling the OS - hoping that /Applications gets corrected. If you were worried about the rm command, you could also rename /Applications and reinstall your OS - hand moving back just the Apps you need being careful not overwrite things again.

This is a rare problem to face - so congratulations on forcing yourself to learn how packages and apps get made on OS X the hard way.