I just finished The Gathering, by Anne Enright, a marvelous book of a dysfunctional Irish family (does literature have any other kind?) that is told by an unreliable narrator--a grieving woman who freely admits that she's not really sure what did or didn't happen in the past that led her brother to walk into the ocean with a pocket full of rocks.
"We know that real events have real effects," the narrator says. "In a way that unreal events do not. Or nearly real. Or whatever you call the events that play themselves out in my head."
(The book is sort of like that throughout.)
One of the fun things about having kids is watching the unreliability of memory in action. It's much harder to judge where your own memory is playing tricks, since you don't always have the objective ruler to point out your errors. But with your children, as they retell the stories of their lives, you can see where they have conflated events, incorporated bits of movies or stories as their own, or simply made things up.
When my youngest was 3, we got a lab puppy for Christmas from our neighbors. But she wasn't ready to be weaned yet, so Christmas morning we wrapped up a picture of the puppy hanging in a stocking and gave that to the kids. Now my son is convinced, and I've heard him tell this story frequently, that they came down Christmas morning and Stella was hanging there by the fireplace. We've told him a time or two it didn't happen that way, but the memory--borne out of the picture--is as real for him as anything.
Now I'm happy to let that memory ride. As Enright's book shows, there are far darker childhood mysteries to deal with.