The brain is a marvellous thing, and although Tony's example is extreme, I think we've probably all experienced it mildly. As when I find myself upstairs wondering what I'm looking for, or discover I'm putting the kettle in the fridge, or drove home from work and arrived unable to remember anything of the journey.
Charles and Vintage both mention stressful situations, and that could be a factor in Tony's case too, Public speaking is terrifying!
Perhaps the most common serious example is pilots losing 'situational awareness';. Distracted by an unusual event, aircrew miss or ignore the bleeding obvious and crash foolishly. Flight 173 is an example, there are others!
Military men train to reduce the effect. Combat is conducted within an Observe, Orient, Decide, Act loop, and defeat follows if the loop breaks at any point. Breaking the oppositions loop is one of the objectives considered in military planning.
Stressed decision making is often bad decision making, and loss of situational awareness is a major cause of Human Error. Despite everyone on this forum being clever, who's never done something stupid due to a temporary confusion.
We mostly recover quickly from these events, laugh and move on. No joke if the effect is long lasting – very unpleasant, and stressful in itself.
Extreme fear has unusual effects too. I was in busy motorway traffic on the Almondsbury interchange at 60mph, just passing the M3 South exit, when a roof-rack plus suitcases came off a car three or four in front of me. The vehicles immediately behind weaved frantically – I was about to be in a motorway pile-up. I remember vividly the shower of sparks coming off the roof-rack as it scraped across the tarmac, 3-lanes of cars swerving wildly in all directions, and a caravan to my left tilted with one wheel off the ground at about bonnet level. Everything happened in slow motion, in total silence, and in black and white – briefly, the whole world drained of colour. Amazingly it sorted itself out, but I reckon several cars en-route to Wales and the North found themselves heading South instead due to evasive action! Another curiosity, rather than being upset that my family had nearly been wiped out in a serious accident, I was as high as a kite, full of the joys of spring! Not normal!
Dave