According to Johnson, Source Monitoring Error is when the brain incorrectly attributes the source of a memory to the memory itself. This can occur for many reasons: when the brain's encoding process is disrupted by either stress, depression, drug and alcohol abuse, distractions, etc... OR because the brain is limited in its ability to encode information properly because it is not yet fully developed (i.e. childhood). Our brains encode information in two ways, heuristic (automatic) judgements, and systematic (analytic) judgements. There are also 3 different types of source monitoring errors: internal, external, and reality. Internal monitoring errors apply to the individual's inability to correctly conjure memories about their own experiences. Whereas external monitoring errors, in contrast, refer to the individual's inability to correctly remember information about events outside of themselves. Reality monitoring errors are when the individual is unable to determine between internal and external memories.
An example of this would be dreaming something and then waking up and thinking it actually happened.