Your mind can often play tricks on you, especially when confronted with optical illusions. An example of such an illusion is the well-known young lady and old hag illusion, in which an image of a young woman also appears to be of an old woman, depending on where your eyes focus. Perceptual illusions, however, work in a different way to confound your perception of reality.
A perceptual illusion differs from a strictly optical illusion, which is essentially an image that contains conflicting data that causes you to perceive the image in a way that differs from reality. Optical illusions typically work by using certain visual tricks that exploit certain assumptions within human perception -- in essence, the image itself is the illusion. A perceptual illusion, however, is not an optical phenomenon, but rather a cognitive one. The illusion occurs in the way your brain processes the visual data you transmit to your brain.
Perceptual illusions can be sensory. According to researcher R.L. Gregory in his 1968 paper titled "Perceptual Illusion and Brain Models," a perceptual illusion occurs when any of the sense organs "transmit misleading information to the brain." An example of a sensory form of perceptual illusion is the phenomenon of "phantom limbs," in which a person who has had a limb amputated claims to retain feeling, including pain, in the limb that is no longer there.
Perceptual illusions can also be auditory. Psychologist Diana Deutsch discovered several auditory illusions relating to music. One of the most striking is the "phantom words" illusion. This can be heard in an audio recording that features repeated words and phrases that overlap each other, placed in different auditory spaces within different regions of the stereo space. As you listen, you can pick out specific phrases, none of which are actually there. In fact, your brain is attempting to make sense of what is essentially meaningless noise, and fills in what's necessary to make sense of the sounds.
In the 19th century, Swiss physician Ignas Troxler discovered a visual perceptual illusion that remains an example of how a perceptual illusion works. The basic effect involves a small point within a different colored border, and both on a different colored background. If you stare at the center point for a minute or two, then the colored object surrounding it appears to fade into the background. This effect, called "Troxler fading," seems to indicate that the brain, when confronted with the same boring stimuli for an extended period of time, will maximize efficiency by ignoring it and use those brain cycles for something else.