It's more of a "big fish story".
Over time they were told to be more beautiful than they originally were perceived.
I think, if you spend months on a ship and you see manates swimming in the distance, they might appear like naked fat women taking a swim.
Men get desperate the longer they lack intimacy hence they were fantasizing about meremaids.
Mermaids are mythological, wonderful beings that some people have claimed to have seen! The people who have seen them, most of them sailors, have said that it is half fish and half woman. They have spoken of her incalculable beauty and her voice, because if there is one trait that defines this mythological being, it is undoubtedly the great power of seduction that was attributed to her voice. The first to relate that terrible quality was Homer, in whose famous book The Odyssey, he describes them as beings who "bewitch all men who approach them", since he who hears his voice "will never be surrounded by his wife and tender children (...). Rather, they enchant him with their sonorous song, sitting on a meadow where they are surrounded by a large pile of rotten human bones, covered with dry skin". Those voices were what was known as the siren song, a terrible threat to be avoided by the sailors of Antiquity as they sailed the seas. There are many anecdotes and stories collected from sailors who claim to have heard the sirens sing and to have lost the course of their vessels.
Many of these stories have been taken as fables and in fact it is now thought that belief in them could have arisen from the sighting of seals and manatees, also called marine cows, animals today well known but mysterious in those times. The great writer Gustave Flaubert said: "Beware of your dreams; they are the mermaid of souls. They sing, they call us, we follow them and we never return".
I do not know if they are hallucinations, what we can say is that although there are theories to explain the existence of sirens, even their existence is still a mystery. But in the meantime, cinema, television and even literature make us believe that they are real and we do not doubt their existence.