How old is your mother? Does she show any other signs of dementia?
Looking backwards, my grandfather had hallucinations about 10 years before I could recognize he was having dementia. Of course, I wouldn't have wanted to see it. He'd be fine, then right out of the blue he'd say he saw people in the neighbors yard (strangers) doing something somewhat bizarre, but not out of the realm of possibility.
Later on, it became more bizarre - like he became fascinated with the stoplights in the front yard that had been there for about 20 years. He started to say there were men inside who physically changed the lights from one color to the next. Not too long after that, it started to go downhill faster. As he began to forget things more, sometimes who we were, he became more angry as well, and he started sleeping much less.
I'd say he started in his early 70s while he was still very healthy physically. He died at 83, and at that point, I don't think he knew who most of us were.
My grandmother was slower. She was pretty good until around 83 when my grandfather passed, then she was OK as long as she was in her normal surroundings. If she had to go to the hospital even overnight, she'd be calling the police and anyone who would listen to tell them they were killing people in there or she saw people getting shot in the parking lot. She wouldn't know where she was - she'd convince herself that her apartment had been burned down and she was in a place where they evacuated people. Once she got back home, she'd slowly come back to herself in about 48 hours.
She didn't know any of us when she died at 88, but she had broken her hip about 4 months earlier, had to have surgery, and never came back mentally. It was a sudden drop in mental capacity.
If your mother has been mentally unwell her whole life, then if she's been stressed, it would be easier for her to go into psychosis. People like to jump straight to SZ out of fear, but lots of things can cause psychosis - and under the right conditions, anyone can have it.
Some physical health problems can cause psychosis.
Bad reactions to some drugs can cause psychosis.
Withdrawal from drugs or alcohol can cause psychosis.
If you stop sleeping for long enough, it can cause psychosis.
And, dementia or really bad depression/anxiety can cause psychosis.
If she's older, and this is the first time she's hallucinated, I'd look at other reasons. I don't think very many people develop SZ later on in life. Of course, there are also people who go through their life mildly psychotic for a very long time and are just good at hiding it, like maybe she hid it in the hospital.
If it's truly dementia, the best thing to do is just roll with it if it's not dangerous to do so. I have no advice about how to deal with visual hallucinations otherwise. My son says he's only rarely had those, and whenever he has, he's realized what they were. He's more of the paranoid/grandiose delusional type.
I think for him, I'd just tell him I'm not seeing what he sees, just like I tell him I can't read his mind or hear his thought broadcasts no matter how psychic he thinks he is while he's delusional. However, I always agree that I could be wrong, and he could be right, because it doesn't do a lot of good to directly challenge them when they're really, really sick. You have to be very neutral without reinforcing their ideas.