The confusion of imagination with actual memories, or the formation of false memories, due to a psychological or neurological disorder.
Example: A patient describes in vivid detail a visit from her parents the previous day. You later discover that her parents have been dead for years.
This website provides a wonderful and very detailed description as well as the causes of this mental health issue: http://www.memorylossonline.com/glossary/confabulation.html
Fournier, G. (2010). Confabulation. Psych Central. Retrieved on April 26, 2015, from http://psychcentral.com/encyclopedia/2008/confabulation-2/