The way I understand it is that the farplane is a real place. During the life of someone the pyreflies that exist within them get imprinted with the "soul" of the person, both real and DZ people since DZ people are aeons and are therefore made of pyreflies anyway. At death these pyreflies are liberated from the body and depending on the mental state of the person who just died can go to the farplane, become an unsent or a fiend (the last two would require a sending to get them to the farplane). Then someone who remembers them goes to the farplane and thinks about them, and the pyreflies that carry that persons imprint are attracted to the rememberer and gather to form a weak image of the dead guy.

So as you've already established, yeah, they're just illusions and its not really the dead person floating there, just a memory of the pyreflies reacting to someones thought of the person.