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LET ME BEGIN BY SAYING THAT I consider the term psychic reality anachronic. It belongs to an earlier period of psychoanalysis. Its continued use in present-day psychoanalytic conceptualization is unwarranted.
Freud introduced the term originally because he needed to fill an important gap in the structure of his theories. He had advanced the notion that the symptoms of hysteria resulted from the effects of an actual, i.e., "real," event that had been very painful or unpleasant and, as a result, had been excluded (repressed) from consciousness. The act of repression by no means put an end to the matter. The repressed memory persisted in another portion of the mind, a second "instance" or agency, not available to consciousness, and there behaved like a foreign body with a dynamic thrust of its own. Under certain conditions, this dynamism made itself manifest, i.e., it returned from repression, in the form of hysterical symptoms. The hysterical symptom, he argued, could be considered as expressing in action a disguised or distorted representation or recollection of what had been a real, actual event (Breuer and Freud, 1895). Hence, he coined the aphorism that hysterical patients suffer