Simulated reality is the idea that reality could be simulated — often computer-simulated — to a degree indistinguishable from 'true' reality. It could contain conscious minds which may or may not know that they are living inside a simulation. In its strongest form, the "Simulation hypothesis" claims we actually are living in such a simulation.
This is different from the current, technologically achievable concept of virtual reality. Virtual reality is easily distinguished from the experience of 'true' reality; participants are never in doubt about the nature of what they experience. Simulated reality, by contrast, would be hard or impossible to distinguish from 'true' reality.
The idea of a simulated reality raises several questions:
1) Is it possible, even in principle, to tell whether we are in a simulated reality?
2) Is there any difference between a simulated reality and a 'real' one?
3) How should we behave if we knew that we were living in a simulated reality?