You or your sister had a nightmare. One woke up, scared the crap out of the other. You convinced each other you saw something.
Memories from childhood will drastically change over the years.You both fed off the story and convinced each other it was real.
I had a similar one, posted somewhere around here. If I did not know better I would swear it was real. I can see it all right now.
Our minds can do some crazy and wonderful things.
Also, mass hallucinations are a real thing. So, for two people to have one, yes it can happen.
That was the short version.