Hallucinations are not dreams but false sensations of reality. A person may believe they are touching, smelling, seeing or hearing stimuli that do not in fact exist. Hallucinations can be one distressing symptom of schizophrenia, but they also occur in sufferers from Parkinson's Disease and in some cases of dementia.
There is treatment by medication, and a sufferer from hallucinations needs to see a doctor straight away so that the cause of them can be determined then treated. I am not including the distortions of reality that can occur as result of taking recreational drugs.
It can be difficult to distinguish a hallucination from a dream but according to medical experts, I believe the consensus is that hallucinations cannot be considered dreams. According to the American Sleep Association, “Sleep hallucinations occur in the state between waking and sleeping (the person is considered to be technically asleep during these hallucinations though), as opposed to dreams or lucid dreams, which occur while asleep.”
A key feature that makes a hallucination different from a dream is that most people will know they were dreaming when they wake up. People who have hallucinations will often be confused and have trouble distinguishing the hallucination from reality.