Some 40 years ago, Jean Baudrillard rejected the distinction between “reality” and the “simulacrum”. (He stated: “The simulacrum is true.”) And, in his 2022 book, the philosopher David Chalmers also tackled "simulations", "virtual worlds" and "the real”. (Much of this is done within the context of the film The Matrix.)

In his book Reality+: Virtual Worlds and the Problems of Philosophy, David Chalmers writes:
“Simulations are not illusions. Virtual worlds are real. Virtual objects are real.”
He continues:
“[ ] I argue that even if we’re in a simulation like the Matrix, the world around us is perfectly real. There are still tables and chairs, planets and people.”
Elsewhere, Chalmers also tells us that the “central thesis of [his] book is virtual reality is genuine reality”.
The broad upshot here is that not all experiences of simulations are also experiences of illusions.

Simulations are only illusions when those people who experience them don’t realise that they’re simulations. However, when the individual knows that he or she is “in” a virtual reality (or simply experiencing a single simulation), then the notion of an illusion isn’t apt. [See note 1 on some simulations being “deceptions”.]
All the above, then, rules out the central idea of The Matrix. In this film, people don’t realise they’re living within a virtual reality — i.e., within the Matrix.
The word “illusion” is also put up against the word “real”.

Jean Baudrillard on Reality and Appearance

The Matrix’s rebel leader Morpheus (played by Laurence Fishburne) tackles what the philosopher Jean Baudrillard (1929–2007) called “the Real”. The following is what Morpheus says in that film:
“How do you define ‘real’? If you’re talking about what you can feel, what you can smell, what you can taste and see, then ‘real’ is simply electrical signals interpreted by your brain.”
Despite emphasising the “simulacrum”, Baudrillard still recognised reality — or at least he recognised a non-simulated world. Take this account of Baudrillard's position:
“Baudrillard observes that the contemporary world is a simulacrum, where reality has been replaced by false images, to such an extent that one cannot distinguish between the real and the unreal.”
Baudrillard himself goes one step further than the passage above in the following:
“ The simulacrum is never that which conceals the truth — it is the truth which conceals that there is none. The simulacrum is true.”
Taking the words “reality has been replaced by false images” literally, they must mean that there was a reality — and even that there still is a reality! After all, in order for Baudrillard to have recognised that (among other things) most/all(?) people can’t “distinguish between the real and the unreal”, then he must himself have… distinguished between the real and the unreal. At that point, then, the real was… real. This must have been the case otherwise Baudrillard's whole philosophy-of-the-simulacrum wouldn’t have got off the ground in the first place.
More specifically, realising that “false images” are, in fact, false must have taken some epistemological and metaphysical effort on Baudrillard’s part. Indeed, this could only have been done if Baudrillard had firstly recognised what is real.
More broadly, all this means that Baudrillard effectively placed himself in a long philosophical tradition in which various philosophers (Plato and Marx are good examples) distinguished “reality” from “appearance”. In Baudrillard's own case, then, he distinguished what is real from the simulacrum.
Relevantly enough, The Matrix’s Morpheus (mentioned earlier) stated the following:
“Welcome to the desert of the Real.”
Sure — the Real here actually refers to the “virtual world” of the Matrix. Yet that virtual world is real! Or, more correctly, virtual worlds generally were taken to be real by Baudrillard himself. Moreover, in the senses mentioned earlier (i.e., in relation to Chalmers’ own take on this issue), virtual reality must be real because there’s nothing else for it to be.
Simulations Are Real

To repeat.
In a strong and simple sense, a visual simulation, or even an entire package of simulations occurring together to create a virtual reality, can’t be an illusion in and of itself. After all, what you see, hear, touch, etc. is, in some way, still real. (That, basically, is David Chalmers’ own argument.)
Indeed, even an illusion is real…
What else can it be?
This also means that it must be what people make of a simulation which may involve illusion.
For example, if someone believes that the dinosaur in front of him is real and not a simulation (or an hallucination), then he has swallowed that particular illusion. On the other hand, since people usually know that they’re witnessing a virtual reality, then the word “illusion” simply isn’t appropriate here. However, if they don’t know that dinosaurs are extinct, then the word “illusion” is apt.
Simulations are real in another sense too.
Simulations must have (or simply may have) a physical basis in that the software for the images is implemented in a physical hardware. In addition, whatever is going on in the human sensory system and brain when simulations are experienced, then that must be physical too. [Idealists will disagree with me on this. See my ‘Bernardo Kastrup: “The brain does not generate the mind.”’]
Laypeople and the Real

If we return to Morpheus and his statement that the Real is “simply electrical signals interpreted by your brain”.
It can be argued that most laypersons are aware that “what [they] feel, what [they] smell, what [they] taste and see” are not external objects and events themselves. After all, most people don’t believe that objects and events are literally inside their minds and/or brains. What could that even mean? [Some externalists don’t like this distinction. See note 2.]
Moreover, the feel of a soft blanket, the smell of shit, the taste of Marmite and the visual experience of a sunset are even less likely to be divorced from the “electrical signals interpreted by [ ] brain[s]” by laypeople. Of course, most laypeople won’t have the scientific language to go into any great — or even small — detail about this (e.g., by referring to electrical signals, neuronal activity, action potentials, etc.). However, they still know that feels, smells, tastes, and visual experiences are to do with what goes on in their brains and/or minds.
Chalmers’ on the Context of Virtual Worlds

On a broader level, the following passage expresses how David Chalmers sees things when they’re placed in a more psychological, sociological and even political context:
“These worlds needn’t be illusions, hallucinations, or fictions. Our time in them needn’t be escapism. People already lead complex and meaningful lives in virtual worlds such as Second Life, and VR will make this commonplace.”
This again shows that we needn’t conflate illusions with simulations. Indeed, perhaps some simulations can help us understand non-simulations — i.e., physical reality itself. Chalmers himself seems to be suggesting that certain types of virtual reality and “Second Life” may be educational, as well as what he calls “meaningful”.
On another, perhaps pedantic, note.
Can it really be said that there are some people around today who “already lead complex and meaningful lives in virtual worlds”? Surely Chalmers means that only parts of such people’s lives occur in virtual worlds. Indeed, if they literally lived all of their lives in virtual worlds, then there’d be an argument that such a state of affairs couldn’t be either meaningful or educational.
Moreover, don’t virtual worlds need to be placed within the context of non-virtual worlds? In other words, if virtual worlds aren’t placed within the context of non-virtual worlds, then why use the term “virtual worlds” at all? Wouldn’t these worlds simply be… worlds?
Notes
(1) This is one definition: “simulation” = “the act of pretending; deception”. Thus, on this definition at least, a simulation can be experienced as a (kind of) illusion.
(2) The following is an account of externalism at its “extreme”:
“The extreme view of externalism argues either that the mind is constituted by or identical with processes partially or totally external to the nervous system.”