My mother has conversations with relatives who have died. Why is this happening and what can I do?

This is common with dementia. She remembers them and wherever she is - likely her childhood home - to her it all seems real.

My dad used to tell me he talked with Marion, my mother's dead sister, and that she was running a hotel. This happened repeatedly. I didn't try to argue - who knows what he saw?

If she isn't upset, I'd just let her be. If she is upset, try to calm her by saying that she will see them soon or whatever seems appropriate. Remember that this is real to her.
Carol