The Freudian term "uncanny" is translated from the original German "unheimlich" which literally translated means "unlike home". It refers to things which are simultaneously familiar and unfamiliar, something like deja vu, but more frequently evoking a sense of disgust or rejection. In the context of the Family Romances essay, the "uncanny" is the sense of familiarity with one's family due to growing up with them, combined with a sense of rejection and disgust as one attempts to forge an independent identity.
"Family Romances" specifically describes the development of a child or youth's identity as an individual, particularly as their worldview comes to encompass and understand other families and family ideals, as well as the failings of their own family. The family romance is essentially a preserved ideal, held over from the time when the child saw their family as more or less perfect. As the child matures, this ideal is retained, but is attacked by the flow of contrasting events that naturally take place over time; say, for example, the once-invincible father loses his job. This creates cognitive dissonance in the child; a contrast between their self-concept and their observations. This can lead to various degrees of rejection: the child might seek "new parents" in the form of celebrities, or may even imagine themselves to be adopted. Freud argues that these fantasies frequently imagine the child to be of "higher" or more noble birth than their parent's lineage would indicate. These are ways of preserving the original ideal, as laid down by the birth parents when the child was young, essentially romanticizing the child's early image of what families are supposed to be like.