Something that's hallucinatory appears dreamlike or unreal. If you think you see your cat and dog having a tea party at midnight, feel free to describe it as a hallucinatory sight.
If you sense something hallucinatory, it's either not really there — it's an actual hallucination, an illusory perception — or it's as dreamlike or fantastic as a hallucination. You could describe strange dreams, surreal art, and bizarre movies as hallucinatory, for example. Hallucinatory comes from hallucinate, which originally meant "deceive," from the Latin hallucinatus, "wander in the mind."