That's a good question. I suspect the last, as it is not always something logical. I have seen it many times in schizophrenic people, but I'm not sure which part of the brain is involved.
Having just googled it (and i hope the link works)- auditory are the most common hallucinations and they come from whichever sensory part of the brain is damaged.
When I was very ill, on a cocktail of very strong drugs and not eating I had pseudo-hallucinations, I saw things but thankfully I knew they weren't real. Horrible images, many I couldn't have made up if I'd been asked to so I've no idea how my brain produced them.