The jump with seeing Old Joe escape to seeing Old Joe get shot is alternate universes. Think of it this way. The movie works in two separate alternate timelines - the one where Young Joe murdered Old Joe, grew up, fell in love, lived his life, was captured, broke free, went back in time on his own, knocked out Young Joe and ran (that last is the second timeline).
It's actually very simple when you accept that things can change. We can call them Joe 1, Joe 2, Joe 3.
When it jumps after you've just seen Old Joe 2 escape, to seeing young Joe kill Old Joe - you are in fact seeing the memory and life of Joe 2, and unlike the Young Joe 3 he meets when he goes back in time and changes things, he himself killed his Old Joe 1, when he was young.
One thing I find stupid also, besides the things already mentioned. The Rainmaker in the Old Joe 2 timeline was this monster crime lord... but... no one had made him an orphan in that time - no Old Joe to hunt him, as the Young Joe in that timeline had killed Old Joe - so the kid grew up with his mother, yet still became this monster. Then Old Joe 2 comes back to kill the kid and Young Joe 3 gets a vision that it was because the kid was orphaned that he became the monster, but would turn out great with his mother there to protect him... well... no... not really... so the whole end is left with the fact that the kid is still going to grow up to become this monster, even though the movie tries to invoke the sensation that everything is gonna be all right now just because he has his mother - like people who has loving parents can't go bad. And by killing himself and erasing him from history, Joe also removes a component that may have been able to successfully stop the monster from rising. :facepalm
