Yes, some do and some don't. Sometimes the patient may realise what they are seeing isn't real, sometimes not. Sometimes they are relatively harmless, sometimes they can be very frightening. It is probably no use trying to confront and convince the patient things they see and hear aren't real (to them they are real, they can see and hear these things).
There are medications that can help reduce hallucinations, if necessary.
It is also possible for people with AD to have delusions, which are false beliefs (eg they are convinced someone is trying to harm them) which may or may not be connected.
My Dad often wakes up in the evening thinking there are, or have been, people in the house, or that his long-deceased parents are here, but we're not sure whether those are hallucinations, delusions, or just confusion with old memories jumbled up with the present day.
We have found that the medication has helped with delusions, and at the same time has reduced the anxiety that is associated with them, when they surface.