Dad remembers an incident that never occurred. What should my concerns be?

I'd wonder too and even explore if he has any health issues that could be causing delusions or the inaccurate memory. Sometimes a UTI, medication, vitamin deficiency, etc. can mimic cognitive decline. A good checkup and mental evaluation might help discover the cause. Does he have a Durable POA? or Healthcare POA? They may want to step in and see to it that he's okay or gets any needed treatment.

If it turns out that he's having delusions, you may need to ensure that he's getting help he needs inside the home and with his finances. Except in early stages of dementia, it's risky for people to live alone. We have a family friend who believed that he had children jumping on his bed, making loud noises and it frightened him. He ran into the street, fell, fractured hip and never recovered. So, the fear that comes with delusions and/or hallucinations can be dangerous.

You did right not to argue with him. It wouldn't matter and he would not be convinced he was wrong. It's best to appease and comfort. But, I would figure out why he's experiencing this.

I think this is normal, it was for my Dad with ALZ. He was absolutely convinced he lived at one time in the house next to ours at the river house. You could not change his mind, we gave up. Any time he saw men working by the road anywhere, he "knew" they were people he knew from his old home. He loved my husband, unless he "hated that SOB" its unnerving,, but we just tried to roll with it

memory changes over time for everyone. people remember things differently than how they actually occurred. unfortunately , this is a false memory. that too happens sometimes. try not to personalize it. it has nothing to do with you. just let it go.

My 92 y/o mother had a dream last night that I was sleeping in the room next door to her in the rehab facility where she's at, and that I was having a loud and ugly fight with someone & screaming my head off. By the time she told me the story for the 5th time, the dream had turned into a reality and she demanded to know what the fight was all about. She has 'moderate' dementia and scored an 11 (out of 30 being the highest) on the MOCHA test. With dementia, they sometimes have trouble differentiating dreams from reality, and the scope of the conversations can be mind blowing sometimes. You did the right thing by not arguing with him, but the point is WHY is he making up such a story? If he hasn't yet been evaluated for dementia, now is probably a good time. If he's on any new medications, automatically be suspicious of their side effects. IE: Mom was using a scopolamine patch for nausea/vertigo and it made her dementia MUCH worse. The only way I could be sure was to have the patch taken off and watch her behavior the following day. We also have to be detectives, in case you were wondering.........sigh. Sunnygirl's suggestion of a UTI is a very good one also.........when my dad was alive, he'd be out of his mind entirely when he had a UTI brewing or fully in force.

Best of luck; I hope you can sort the situation out!