People with psychoses lose touch with reality. Two of the main symptoms are delusions and hallucinations. Delusions are false beliefs, such as thinking that someone is plotting against you or that the TV is sending you secret messages. Hallucinations are false perceptions, such as hearing, seeing or feeling something that is not there. Schizophrenia is one type of psychotic disorder.
Treatment for psychotic disorders varies by disorder. It might involve drugs to control symptoms, and talk therapy. Hospitalization is an option for serious cases where a person might be dangerous to himself or others.
Information taken from http://www.nlm.nih.gov/medlineplus/psychoticdisorders.html.