How can we taxonomize their experience, and differentiate it from hallucination, or psychotic break?
It's confusing at times; what's real and what's a hallucination isn't always clear.
The whole thing is played completely straight, with no sign that it is a dream sequence, hallucination, or break from reality.
in the pathological/psychological sense of "seeing or hearing something which is not there," 1640s, from Latin hallucinationem (nominative hallucinatio), from past participle stem of hallucinari (see hallucinate). Hallucination is distinct from illusion in not necessarily involving a false belief. Related: Hallucinations.
hallucination hal·lu·ci·na·tion (hə-lōō'sə-nā'shən)
False or distorted perception of objects or events with a compelling sense of their reality, usually resulting from a mental disorder or drug.
The objects or events so perceived.
A false perception that appears to be real, as when, for example, a man dying of thirst in a desert thinks that he sees a lake. (See also delusion.)