It sounds like quite advanced dementia to me, and remarkably similar to that of my mum. She has levy body dementia, which is a type that has an element of psychosis as well as Parkinson.
My mum functioned reasonably well in her home, but when she started accesssing daycare one day a week (more as respite for my dad) she did not recognize her house when she came back - she had been away so long. From there the step to carehome was relatively short. I think the move to unfamiliar surroundings for an extended period of time enhanced her confusion.
She insisted my children had been at her house, making trouble in the night. In fact she rang me in the morning begging me to pick them up - needless to say they were asleep in their beds.
In the beginning at the carehome, she thought she was working there, and everybody else in her family were in the same building, somewhere. She remembered the people, but her world had shrunk to that of her immediate surroundings, nothing existed really outside what she could see - much like a 6 month old child would think the toy has ceased to exist, if you hide it.
I would talk to my mum about London, my dads house, and she was responding, they are masters at hiding their lack of knowledge and up to a point will agree with you and follow your conversation making the right noises. It is interesting though if they take the lead, you get a real window to their mind.
I used to think of the mind as a big filing cabinet. But with alzheimer and dementia illnesses, somebody has made a mess of the files, added files that were tv programs, books read or stories other people have told into the filing cabinet, removed some files (memories), and just jigged the others around. As time goes by, more and more files are removed...
My mum was put on antipsychotics, muscle stimulating, mood enhancing, Vit B injections in her bum (helps memory) and some alzheimer drug I dont know the name of.
At 90, sadly, you must be prepared that the hospital has policies regards to life extending medicine where quality of life, or chance of improvement is very little.