Billy's mom gets scared from seeing Grim for the first time, then deduces that Billy has become a skeletion and tells Billy's Dad who also believes her, but then doubts her when he sees Billy in Grim's place. Neither realize that Grim and Billy are actually doing things together, but draw their own abductive conclusions based on what they see.
Jerry Andress explains several optical illusions and suggests that the discrepancy between our perception and the reality is not a mistake of the brain; the brain tried its best to map out the reality with whatever information it had.
The Eds think Kevin and the other cul-de-sac kids are up to something evil, but in reality they are preparing for and celebrating Jimmy's birthday. Because of their history with Kevin, The Eds are more likely to think that he is participating in an activity to their detriment.