Everybody occasionally has illusions, a misinterpretation of some sight or sound. A delusion is a product of disordered thinking, such as thinking people are saying bad things about you, when they are not even talking about you.Or thinking that you are Napoleon, etc.
I just remembered, a while back we had a thread about the illusion of the moon looking larger when it is close to horizon than it does when overhead.
A hallucination is typically hearing or seeing things that are not there, due to some form of mental illness. Of course all the diagnostic terms have changed since I retired almost thirty years ago.