What term is used for an illness that makes it difficult for people to distinguish between the real world and the imaginary world?

The term that describes an illness where individuals struggle to differentiate between the real world and the imaginary one is psychosis. Psychosis is a mental health condition characterized by a disconnection from reality, which can manifest as hallucinations (seeing or hearing things that are not present) and delusions (strongly held false beliefs). This condition can severely impair a person's perception and judgment, leading to significant challenges in day-to-day functioning and relationships.

Neurosis generally refers to a range of mental health issues characterized by anxiety and distress but does not involve a loss of contact with reality. Depression, while serious, primarily affects mood, energy, and interest rather than perception of reality. Schizophrenia is a specific type of psychosis, but psychosis itself can occur in various disorders, including mood disorders and substance-induced conditions, making the broader term more applicable in this context. Thus, psychosis is the most accurate term for the described phenomenon.