The Illusion is a rare monster that only appears on specific dungeons, most notably the Halls of Steel. It is widely regarded as the most dangerous monster in the game, and you should avoid fighting them wherever humanly possible. Their combination of high physical resistance and the ability to counter fireballs makes them extremely difficult to combat, and every time you attack them they will weaken you. Illusions can quickly cripple any character who attempts to fight them directly, and there is no reliable way to overcome them easily.
If you absolutely must fight Illusions, using dodge effects like GETINDARE or the PISORF glyph are recommended. This will allow you to avoid retaliation and the weakening effect. You will still need to find a way to deal with their hefty physical resistance, otherwise it will take a lot of effort to bring down one of these monsters.
In the Halls of Steel dungeon (hard difficulty only) you will find the Orb of Lusory item that can be smashed to destroy every illusion on the level. This does not grant you XP, but does remove them from clogging up the hallways. This item is not lockerable and is not found on any other dungeon, so you're out of luck otherwise.
There is no illusion boss in the game, though they are found in the Gaan-Telet dungeon.