Of course one of the first signs of dementia is "getting things wrong". My rule of thumb is to gently and respectfully correct the person unless this upsets them. When they become upset with being corrected it may mean that they have are frightened that they are losing their memory. Do not upset them more by telling them they are wrong. Whenever possible just ignore the what they have said and go to another subject.

It also might mean that they are in another stage of a dementing illness where their reality differs from yours. I just "fix the problem" and do whatever you can to make them feel better. When a woman is very upset that she needs to get home to care for her children (who are now grown) I simply tell her they are still at school or at their grandmother's house. Or I might simply be able to distract them with changing the conversation or deciding we should have a cookie and tea.
thanks for asking the question she is fortunate to have such a good friend.