From my experience psychiatrist's define your level of "illness" by how objective you can remain with the hallucinations. Personally I have never had hallucinations, but I have what I call conversations, which sometimes happen all day. I suppose they have little effect on my life other than the fact that I can't really think of anything else. These seem real to me although I don't care because whats the difference. I guess its hard to explain the way I think about it. I think generally ones objectivity/distance to this stuff grows with time and medication at least in my case it did.