Either “Pathological liar” or “Mythomaniac”

The technical term for the condition is “pseudologica fantastica”

EDIT: So many wrong answers that I have found you a link http://en.wikipedia.org/wiki/Pathological_liar

Sociopath – definately wrong

Delusional – there is a big difference between delusion (where a person believes in something totally and won’t be convinced otherwise) and “pathological lying” (where someone starts with a lie, then gets that deep into it that they start believing it to be true)

Edit: I believe that’s what the question said. A pathological liar doesn’t believe in their lies, they just can’t stop lying… they know it’s a lie. The question was what do you call it when a person lies and believes in their lies (i.e. doesn’t realize they are lying)… and that is delusion. There may be a more clinical term for it, but the generic term is delusion. A person is delusional if they don’t know the difference between their fantasy and reality.

Good grief. I recant. A delusion is a fixed belief, not random or embellished. Pathological liar is correct in theory, but hasn’t been proven that they actually believe their lies, according to the article.

Does not perceive that anything is wrong with them

Authoritarian

Secretive

Paranoid

Only rarely in difficulty with the law, but seeks out situations where their tyrannical behavior will be tolerated, condoned, or admired

Conventional appearance

Goal of enslavement of their victim(s)

Exercises despotic control over every aspect of the victim’s life

Has an emotional need to justify their crimes and therefore needs their victim’s affirmation (respect, gratitude and love)

Ultimate goal is the creation of a willing victim

Incapable of real human attachment to another

Unable to feel remorse or guilt

Extreme narcissism and grandiose

May state readily that their goal is to rule the world