If men define situations as real, they are real in their consequences.
This was sociologist William Isaac Thomas's most basic formulation of what has come to be known as the Thomas theorem, which he published in 1928.
This is a very simple and very important statement. In the field of sociology it expresses the idea that individuals have differing views of situations, and one's perception of a situation will determine how one reacts. Thus, even if one's interpretations of a situation are incorrect, the consequences are just as real as if one had correctly interpreted the situation.
A common (but perhaps misguided) example of this is that it people perceive that a bank is in trouble, they may flock to the bank to withdraw their money. Although the bank may have been in good shape initially, it may now be in big trouble. This is an example of a self-fulfilling prophecy. But note that the Thomas theorem predicts a special type of self-fulfilling prophecy; it talks about subjective realities, not objective.
An example more in-line with the original intent of the quote would be something like this: if I see Molly yelling at her daughter, I might conclude that she is a bad mother. Regardless of whether or not she is a bad mother, I am now predisposed to see her actions in the light of my new opinion, and will start collecting data that support my new opinion (this is called framing). I am likely to become more and more invested in my opinion, independent of any objective truth.
This highlights that we can't simply look at the objective facts of a situation. There will be multiple viewpoints in any situation, and having these opinions effects the perceived realities of these people, and therefore the actions that they take.
This sort of idea is often co-opted into philosophy and popular sociology. For example, many people have believed that God exists. So hundreds of thousands of people built churches and cathedrals, started wars and burnt witches, and spent millions of dollars on various renditions of the bible. The same God did not demand all of these things. Some of them are contradictory. (love thy neighbor and kill the nonbelievers) But they really did happen. (Note that this argument works whether or not you believe in God).
This is often generalized to things like democracy, morality, etc. It is debatable whether these things are subjective constructs in the same sense that W. I. Thomas intended, particularly since he was referring primarily to the subjective views of individual's within a culture, and not to the views of a culture as a whole.