These two words sound very similarly, that is why it is sometimes very difficult to recognise each word in a sentence. But once you’ve understood the difference between allusion and illusion — you will never mix them up again.
Allusion is a term that comes from literature and it means a reference to something. But nowadays we can use it in everyday speech. For example:
The merch is obviously an allusion to Ozzy’s most infamous antic, that saw the metal icon bite the head off a bat during a 1982 show in Des Moines, Iowa. (Tone Deaf)
The military allusion is appropriate; this is indeed the new front line. (The Independent)
Your destination is the mysterious tower referenced in the trailer, which might be an allusion to Kafka's The Castle. (PC Gamer)
Illusion is a visual trick, it is something that tricks your eyes and mind. Also, we can use illusion figuratively for something that hides the truth. For example:
No one should be under any illusion that COVID-19 will disappear on May 3. (The Hindu)
The coronavirus scoreboard: The illusion of understanding and control. (Resilience)
Have you ever experienced these natural optical illusions in nature? (Reader's Digest)