Intuitively, I would expect memories of dreams to be different than memories of reality - since dreams themselves are just confabulations in the first place, and memories of them fade rapidly, it's not entirely surprising that people trying to remember their dreams would get confabulations instead.

This suggests a cause for many cases of mass hallucination: sleep deprivation. It's known to cause hallucinations, and in some settings it happens to whole crowds of people at once. Add an ambiguous stimulus and a few people shouting out their interpretation, and you have all the ingredients for a shared hallucination.