The captive lady who must remain in the tower due to a curse put upon her, is not permitted to look directly at the outside world. To compensate for this she views the world through a mirror which provides images that she matches to the sounds she hears outside the walls that imprison her.
The description of Sir Lancelot has to be a vision or created by the lady's imagination because she cannot look at him directly as he passes outside her tower. She imagines what he must look like and how he behaves as she hears him singing outside her tower.
"He rode between the barley sheaves,
The sun came dazzling thro' the leaves,
And flamed upon the brazen greaves
Of bold Sir Lancelot.
A red-cross knight for ever kneel'd
To a lady in his shield,
That sparkled on the yellow field,
Beside remote Shalott." (Tennyson)
She could not possibly have seen him approaching or any of the above, because she only glimpses a shimmer of metal through her mirror.
"He flashed into the crystal mirror,
"Tirra lirra," by the river
Sang Sir Lancelot." (Tennyson)
Then she dares to look out the window, so curious to look at the singing knight and immediately feels the effects of the curse upon her.
"She left the web, she left the loom,
She made three paces through the room,
She saw the water-lily bloom,
She saw the helmet and the plume,
She look'd down to Camelot.
Out flew the web and floated wide;
The mirror crack'd from side to side;
"The curse is come upon me," cried
The Lady of Shalott." (Tennyson)
Her long description of Sir Lancelot comes mostly from her imagination so yes it is a vision, she barely gets a glimpse of his helmet and plume before the curse warns her away from the window.
To further the discussion, I will explain my answer! Since the poem is written in third person, it is not the Lady who describes Lancelot; it is the narrator's description we are given in Part III. Lancelot does come into view--not hers, but ours--as he is introduced into this part of the story. Finally, the question asked how the description of him made him seem like a vision, not how her circumstances would have contributed to that. The way Lancelot is described by the narrator, he would seem like a vision to anyone who looked upon him. Once his image is established, the physical point of view then shifts from outside to inside, and we see the Lady's reaction to what she sees in the mirror and what she hears.
The long description of Lancelot in Part III of the poem creates a vision through its imagery of light. As he rides into view, Lancelot is bathed in light. The sun comes "dazzling through the leaves" and falls in flames upon Lancelot's armor. His horse's bridle is "gemmy." It glitters "[l]ike to some branch of stars." The sun blazes on the sash across his chest and the silver bugle hanging from it. The jeweled leather of his saddle shines, as does his helmet:
The helmet and the helmet feather
Burned like one burning flame together . . . .
The knight's face also glows in the sunlight, as do his horse's hooves. With every detail of the knight and his steed bathed in splendid light and glowing in the sun, Lancelot seems more a vision than a real man.