Most of the definitions in the above writeups are correct, but only partially describe what paranoia really is. Aozilla's definition comes closest, but his reasoning is that it's based in an inability to filter the "stupid" (ie, commonly held to be incorrect) things out, rather than the process that is generating them in the first place. Paranoia happens when the mind creates possible explanations without being given enough information to form an explanation that is guaranteed to be true -- it seeks and finds patterns even when there are actually none there. What's lacking in the severe paranoiac isn't really the ability to filter out incorrect ideas, but the ability to not seek out and believe possible patterns in a given set of noise.

You can see the less intense shades of humanity's inbuilt paranoia in cultural phenomena like the lottery and superstitions. It's not that your five lucky numbers are really more likely to win the jackpot, it's that they've led to good things for you before so they might again -- a false pattern. Likewise the number thirteen and the broken mirror and the cracks in the sidewalk; culture happens upon and latches on to even the remotest possibilities of comprehending randomness. Paranoid pattern-seeking behavior is also what makes psychedelic drugs so interesting to some, the ability to see understandable patterns even in the noisiest or least related stimuli. That behavior is also what makes the psychedelics dangerous, as one can find (and entirely believe, because of the drug) patterns that suggest mortal danger to the viewer/finder.

The ability of the human mind to begin with a conclusion and then selectively map all evidence to fit it is limitless.