Rann, welcome and glad you found us
I am glad you have been lucky along your Mom's journey so far and hope it continues. As for the behavior... it is what it is and you need to just go with it. In her reality these people she talked to and sees are real. If they are not causing her distress then just go along with her. It is typical for those with dementia to have delusions. They also confuse TV, shadows, pictures, dreams, and other visual input. Yes, it is usually worse during sundowning but can happen at any time.
My dad walked in the first morning and ask if his brother had already eaten. HUH?! Which brother? The one that had been here last night for supper and spent the night with us. Uncle H.. said as if we had lost our minds! The brother he was referring to had been dead for almost 40 years. My response was "Oh, yeah Dad, he ate early and left for work!" Dad sat down and ate with no further reference to his brother that morning. But on several occasions after that he ask similar questions about his dad. You just have to go with the flow because his "dearm" about his brother was real to my Dad! As long as we let him believe in his reality he was fine.
He also saw intruders. He could hear them talking and see them in the shadows. A couple of times he swore he had heard gunfire (probably the TV show Mom was watching). He had to lock up the house and we let him. If he needed to peep out of the curtains so be it. As long as the behavior was not dangerous or upsetting to him... we were good! Dad just kept locking up the house at night and as long as we didn't stand in his way life was good.
Mom carried on conversation with something or somebody for a while. At times it got heated but was never dangerous to her or truly upsetting. What upset her was when you tried to tell her nobody was there. If we tried to alter her reality to match ours... it was a fight.
Their reality is as real to them as ours is to us. You will not have much success convincing her that what she knows is not true. You will only frustrate her and cause her to have to defend her position... which could lead to angry outburst that you don't want to deal with. There's nothing wrong with a few friend (real or imaginary) so don't let it annoy you.