Perception of illusion
Pareidolia, put simply, is seeing credible, sensible images in random patterns. Examples are legion, from the Man in the Moon through images of Jesus Christ in tortillas, to the recent face in the cloud in the aftermath of the World Trade Center attack. Different cultures, of course, see different things. To the Japanese, the patterns on the moon show a rabbit making mochi, to the Elizabethans in England, it was a witch carrying an ash faggot.
The ability to perceive images and make sense of them is innate, although making the connections between things has to be learned as youngsters, as the developing mind makes sense of the jumble of information we receive. Many psychologists have studied the way the mind makes sense of images, and it has thrown light on our desire to make sense of the world.
It certainly goes some way to understanding our wanting to explain things: we may want to believe in the Loch Ness Monster or UFOs, and our unconscious mind attempts to interpret what we see in line with our desires. Wondering whether there is life on other worlds also explains the desire to see evidence of intelligent life there, the Face on Mars being one such example. The media frequently have stories on some devout or superstitious soul 'seeing' the face of the Christ or a 'saint' in everything from food articles to patterns of mould. Perception links with the mind to create an illusion of something desired or feared.
Other examples of 'seeing things' may be explained by randomness - given the nature of the billowing clouds after the impacts of September 11, 2001 it was almost inevitable that, of the many thousands of photographs taken, some would suggest faces. Some of these images are compelling, but almost certainly, down to chance.
Pareidolia is also involved in the famous Rorschach Ink Blot Test, used as a clinical tool to understand the motivations of a patient undergoing psychological or psychiatric evaluation. With a view to that, it's important not to confuse it with apophany, which is more to do with having false epiphanies. Finally, to prove that it's not just me, there is a Flickr group devoted to the phenomenon: http://www.flickr.com/groups/pareidolia/.
Just to prove that we are an erudite bunch, I was reminded (by Clockmaker) that pareidolia is a subtype of apophenia. Just goes to show.