Answer: Based on the context, the best definition of the word "illusion" is C. Something that appears to be real but is not.
Step-by-step explanation: The word "illusion" is a noun and it is used to refer to a false belief, that is to say to the act of thinking that something is real when it actually is not. In that way, "illusion" makes reference to a misleading impression. In the passage provided, "illusion" has been used to indicate the false belief that the people living in a town had about their own town, that is to say the belief that it was flourishing when it was actually "falling into disrepair". Therefore, the option that provides the best definition of the word "illusion" is C. "Something that appears to be real but is not".