A telescope's confusion limit refers to a limit on its effective angular resolution due to many sources angularly-near each other making it difficult to separate one from another, a condition termed confusion. A confusion-limited image is an image "bumping on" this limit. It is similar to the limits imposed by diffraction, such as for a diffraction limited telescope. Confusion limiting is a bigger issue for wavelengths longer than visible light, e.g., far infrared, millimeter astronomy and radio astronomy. Portions of the spectrum with higher cosmic background radiation relative to the brightness of sources will have the problem. It presents itself as a limit on how much integration time is of use.
Some globular clusters may create the issue in optical imaging.
From my reading, I've seen reference to its dependency on reflector aperture diameter, which suggests to me that the term is sometimes used for the issue of diffraction, e.g., in some branches of astronomy.