Optical illusions arise due to differences between perceived images and objective reality. There are three main types of optical illusions - literal illusions that distort images, physiological illusions caused by eye/brain stimulation, and cognitive illusions arising from unconscious inferences. Physiological illusions result from effects on vision like adaptation or lateral inhibition. Cognitive illusions involve perceptual organization, ambiguous figures, impossible objects, and distortions of features like size, shape or color based on context. Optical illusions reveal insights into visual processing and perception in the brain.