A polite fiction is a social scenario in which all participants are aware of a truth, but pretend to believe in some alternative version of events to avoid conflict or embarrassment.
[1] An informal example would be of someone who goes out drinking after telling their family that they are merely going for an evening walk to enjoy the night air.
Another common example is a couple that has had an argument, after which one of them absents themselves from a subsequent social gathering, with the other claiming that they are ill, especially if this is a regular occurrence.
This is especially the case when the fiction is actually meant to fool some observers, such as outsiders or children judged too young to be told the truth.
This can be used to humorous effect in comedy, where a character will seem bent on making it impossible to maintain the polite fiction.