The Merriam Webster Dictionary defines it as: “the tendency to perceive a specific, often meaningful, image in a random or ambiguous visual pattern”. An article in New Scientist may explain it best: “The human brain is optimized to recognize faces, which could also explain why we are so good at picking out meaningful shapes in random patterns. This phenomenon, could be responsible for a host of otherwise unexplained sightings, such as the face of the Virgin Mary on a toasted cheese sandwich.”
Some investigators use the term matrixing for this process. Many times people bring investigators photos where they see a shape or face in a window. Unfortunately, these photos usually turn out to be artifacts of their mind trying to make sense of what they are seeing.
A more positive example is the Rorschach inkblot test. This test uses pareidolia to gain insight into a person’s mental state by eliciting the thoughts or feelings of respondents by their interpretation of the images.
Carl Sagan hypothesized that this may be a survival technique. Are we “hard-wired” from birth to recognize a person’s face? A person walking in the woods full of shadows and light may have had an evolutionary advantage when seeing someone at a distance or in poor visibility. This could allow the viewer to quickly decide whether that person was friend or foe. The negative side of this ability is that we often can misinterpret random images or patterns of light and shade as a human face. Who hasn’t had someone point out the Man in the Moon as a child? Asians see those very same shadows on the moon as a rabbit! I frequently see faces in some wallpapers!
Why talk about pareidolia? Paranormal investigators frequently are asked to examine photos. Much of the time, the images can be explained as pareidolia. As an example, I want to share a marvelous photo caught by the Hubble telescope that looks like a happy face.The attached link also has an explanation. https://darkmatterspace.wordpress.com/2015/02/11/hubble-captures-happy-face-of-universe/.