My aunt makes up stories from the past, then later denies she said it.

At the risk of being a rapscallion, try to embellish the stories.
Add a part about your alien abduction, or tell Dad about how embarrassed he made the family when he had an affair with Liz Taylor, but when the Pope forgave him, it was all cool again. Obviously, this tactic will not be appropriate, but it worked for me when I was caring for Ronald Reagan, during his second presidency. That's where he an Nancy got the astrology from. I never *dreamed* they would take it seriously. But that advice got us out of a recession. Didn't work out so well with that Ollie North, but that story's for another day.

Making up and denying stories is one thing, however as a caregiver you must be very, very careful about the kind of stories, and to whom they are telling them. Sometimes it seems that they actually do believe their own stories, and that is fine......but if they are contacting people with stories that are totally untrue and incriminating, then you have a problem, as I did when my mother wrote a letter to a family friend because she wasn't getting her own way and was having a bad day.
She fabricated a scenario where she was "being held prisoner in jail" without privacy, phone use, or the opportunity of "getting out"; she also said that she wasn't getting enough food (but it was the kind of food she wanted that she wasn't getting, in actual fact).
The person who received the letter reported me to the elder care agency in our city, who then contacted the police. There was a full investigation by both and records were made. I received many phone calls and had to deal with many people from both the agency and the police.
I also called a family meeting so that she could be confronted to see the damage she had done, and so that other family members would be aware of the lengths she had gone to because she was trying to manipulate her situation.
Of course she lied about every single detail, from whom she sent the letter to, that it should not have been shown to anyone (what did she think the person who received it was going to do with it? she was only trying to help in what she thought was a real, serious situation!! I don't blame the lady who received it at all, in fact I pride her in trying to do the right thing, I would have done the same), and that she "didn't really mean it", but would not admit she was wrong, nor, naturally, did I get an apology.
My sibling, however, who joined the meeting, got an "I'm so sorry, I didn't think a little letter would cause so much trouble" (yeah right, that was exactly your intent) and a kiss and a hug. He has nothing to do with her caregiving and sees her once a year.
When my mother fell last year resulting in two black eyes, I was terrified that she was going to tell the emerg dr.s that I had done it. She wouldn't take responsibility for the fall either, saying "someone must have dropped some water on the bathroom floor". This was hilarious because she fell in our bedroom, not her bathroom!! I also got grilled on that incident.
Just know that they are very devious, secretive, manipulative, and creative in these stories, and to whom they tell them. Be on guard for YOU!!

Also just wanted to mention that a lot of times, they make up these stories just so they will have someone to engage in conversation, or to give themselves a sense of importance. In my mother's case, she has always been an "arguer" and must be right at all times......so she will go to extremes to make up things and then deny them, or change the subjects of the arguments etc. so she can be "right". She will fight to be right and will argue to the death, over time, money, the weather, over a second or over a penny. She will look right in your face and try to convince you that there's something wrong with you, you are overreacting, you're too sensitive, you have a bad memory, you like to play dumb, don't you, blah, etc etc etc.
On top of this I realize that not only is it part of her personality, I honestly see that she has always had some sort of borderline personality disorder complicated by narcissism. It ain't pretty!!

My adult kids and I always wondered if mom had two personas. The outside world thought she was grand. To us she was a monster. They even told me to never go there alone for fear of what would happen to me. She eventually disowned us because she couldn't get us to do it "her way", that along with that vile person who nosed her way into our lives at my mom's insistence. Lord only knows what mom told people. Stories are one thing, what your mom and mine did went beyond the pale. She passed away two years ago and my kids and I finally feel free to move about the cabin so to speak. I resent her for making us feel this way. I wish I could say loving things about her but there just aren't any.

Mom does the same thing, and my initial reaction was: lies!! Because I was brought up to always say the truth it was an issue--and now the enforcer was breaking the rules. I finally realized she spoke partial truths and strung them together, as if one story reminded her of another...once I understood, I just went with it and stopped correcting her. And in five minutes, it was forgotten. You've got what you've got. We can't change it.

My FIL also lies. His latest is that he is absolute agony when his son phones him, and he puts on a full act of speaking with breathless voice, moaning if he has to move, etc. Last night said son accused us of not looking after him because this chest pain is dragging on and on and what the hell were we going to do about it.
This morning we asked him if he was in pain still ... oh yes, he said, as he slapped his chest hard, and jumped down the stairs and did a little jig to get to the coffee machine as fast as he could. Its absolute agony to move, he said, as he stretched up to the top shelf and got a new packet of coffee down. It hurts to breathe, he said as he breathed in deeply and said oh spring is coming.
Would you like a pill for the pain, we asked. Oh no, he said, it doesn't hurt enough for a painkiller.

Who would have thought that a grown intelligent man with two professorships would become like this?

(We have at least 6 - 10 of these "stories" a day)

Mom, craving the spotlight at family get-togethers, does the same thing. ... She's amazing! The Puerto Rican Ernest Hemingway of BS. And her marbles are quite intact.

I gather that as a child no one paid her much attention, so she made up stories that became harder and harder to recall as the years passed. Put simply, she couldn't keep her lies straight.

Her mind is still sharp as a tack, but her memory is quite selective. When she's not aggressively denying she ever said something, she claims her mind is going and fake-cries.

Her croco tears don't fool me anymore, so every now and then I tell her: "When you tell the truth, you don't have to remember anything Mom."

Mine doesn't have dementia either, and she is almost 88! But there are clearly (and have been for a long, long time) some underlying mental issues.....but she is so clever at diverting doctors' questions and wangling them for meds that no one is on to her: except ME!!! Yes I do have to be very, very careful. There is an awful lot of this behaviour going on with her. Funny, I never noticed it when she was living alone in her apartment in another town (I would talk to her by phone once a day but she was always on her best, most competent behaviour) but, believe me, once she came to live with us four years ago, I sure got my eyes open!!

It's called "confabulation", my mother did it also. She couldn't remember it as an untruth, so, it must have happened. It's not uncommon. The situation may have been a dream of something long ago, or something she saw on television. The person just doesn't realize that there is a difference between fact and fiction because it fits into the time gap.

Holy Moly Bat Man, Seven 13, that is exactly what I meant when I said you'd have some real trouble. It has happened to me, it truly is horrific, I moved country to have it happen to me, a foreign land despite land of my birth, knew no one and I accused by my mother telling stories that I was hitting, not feeding her and keeping her jailed, etal. What a disaster for me that was, I told my mother in no uncertain terms, also the people who came here to investigate, that if anything ever remotely occurs like this I will leave this country and not look back, end of story period. I went through hell to get here and gave up the life I knew, I will not be ever placed in that position again, it will be over, and I will not think about it twice.