Dreams into reality. What could it be?

How long has this been happening? Any recent hospitalizations, new medication ,etc. A sleep study might be a good idea once you rule out any infections

If this is a case of very realistic hallucinations, very elaborate, and occurring often at night hours, this is a early symptom of Lewy's.
This is something to check out with Mom's doc who will run some basic tests (draw a clock set at a specific time; spell a word backwards, and etc) and will decide if further neruo-psyc testing is needed.

My Mom had Dementia and was not able to separate dreams and TV from reality. I would check out, like said, any meds she maybe on.

lyunek, have your Mom be tested for an urinary tract infection [UTI] as such an infection is common in elders, and can produce a whole variety of different symptoms, even confusion. This type of infection can be controlled with antibiotics.

Some medications can cause really lucid dreams and/or can cause a deep sleep that it can be difficult to wake fully from for several hours after arising, have you investigated that?