Changing, loosely held and false memories created to fill in organically-derived amnesia [ Psychiatry On-Line]
This term originally referred to a neurological deficit in which a person who is unable to recall previous situations or events fabricates stories in response to questions about those situations or events. It is now used more broadly to refer to "false memories" that are supposedly created in response to questions asked by a therapist or interviewer. [Sidran Foundation's Dissociative Disorder Glossary]
The term is often used to describe the "memories" or stories of people claiming to have been abducted by aliens, as well as "false memories" induced by therapists often involving bizarre notions of satanic ritual and sexual abuse of children.
A confabulation is a story or memory which may be based partly on fact, partly on fantasy, or be a complete construction of the imagination, planted and developed by a hypnotist or therapist.
See related entries on alien abductions and memory.
further reading
"The Eyes that Spoke," by Martin Kottmeyer A case history of confabulation.