In psychiatric terminology an illusion occurs when we misinterpret some data from the senses. Illusions are what happen when we look at magic shows, or optical illusions. It is different to a hallucination, where the initial sensory input is itself corrupted, here it is the mind's interpretation of sense data that is wrong. That's the official line anyway, frankly I am skeptical that enough work has been done with people's skulls open to define hallucination like that. How do we know whether the error arises in the sensory apparatus or during interpretation in the brain ?