Allusion is a noun form of the verb allude and means “a reference to something indirectly or covertly.“
An illusion is something that creates a false perception. The term “optical illusion” is an example of the correct use of this word.
An allusion is something that commonly appears in literature. An illusion is something that commonly disappears in a magic show.
Example: To help build suspense, the magician made an allusion to the death-defying acts of Houdini before attempting an illusion of his own.