to believe that things you want will happen, when really they are impossible.
Anyone who thinks this project will be finished within six weeks is living in cloud-cuckoo land.
live in cloud-cuckoo land
To believe that unrealistic, idealized, and/or fanciful ideas will happen, when in fact they are beyond the realms of possibility. Tom thinks he'll be able to live off his bad poetry—he's living in cloud-cuckoo land if you ask me!