There are various pieces of advice on the internet regarding how to learn vocabulary, but most writers set out to write their advice with the goal of convincing you that their way is best. This means that they skip the weaknesses in their chosen method, and they attack other methods on rather simplistic, superficial grounds. I would be happy to do the same thing, as it would really stoke my ego to know that people were doing stuff because I said so. But that wouldn't be particularly useful, so I'm going to try to avoid telling you how to learn vocabulary.
Instead, what I want to do is arm you to make an informed decision on techniques yourself. It's a topic I may revisit later, but for now I want to focus on the reasons vocabulary items become confused. As per the title, I break confusion down into three main categories: confusion by form; confusion by function and confusion by co-occurrence.
Confusion by form
Confusion by form is the simplest. If two words sound and/or look alike, they are very easy to confuse. English is full of great examples -- classic spelling mistakes between homophones such as "bough" and "[take a] bow", "aloud" and "allowed" etc. Most languages aren't quite as bad as English for having homophones that are written differently, so the confusion is normally between similar words, not identical ones.
But there's more to it than that. Have you ever been trying to think of a word and you've got a sort of shadow of the word in your head? The features of words that are easiest to remember are the first syllable and the number of syllables, as well as which syllable is stressed. So similarity doesn't rely on just having similar letters all the way through -- it can occur on just the first syllable, or the words may both share a particular rhythm.
We can consider so-called "false friends" as simply a special case of confusion by form, as the only difference is that the confusion occurs across languages, rather than within a language.
Confusion by function
Confusion by function can be split into two subcategories: function of grammar and function of concept.
Confusion by function of grammar is fairly simple but has extremely absurd results. Some people can't believe it exists, but keep your ears open and you will hear it at some point. A word gets dropped in that fits the grammatical category of the place it is in the sentence, but it makes no sense. Anecdotally, I'd say that I've seen it occur mostly with verbs. So for example someone might say "I like drinking books". It's rare, but it happens.
Confusion by function of concept is where two words mean something similar. The obvious example would have to be that high school language class favourites: pets. I could never remember whether un cobaye was French for a gerbil or a hamster, and still don't. I don't suppose I would have recognised the difference between the two animals anyway, so the concepts in my brain were very similar: little fluffy critter.
But the two types of confusion by function can combine to create even bigger confusion. While we do occassionally see completely nonsensical statements like the "drinking books" example, learners will quite often substitute a verb with a similar meaning. So instead of saying "I didn't say anything" they might say "I didn't speak anything", of instead of saying "open the door" they might say "close the door", or even "close the window" (I had massive problems getting my open and close and door and window right in Welsh).
Confusion by co-occurrence
Finally we come to the one that is the most complicated and troublesome: confusion by co-occurrence. Basically, the brain likes to associate things with each other. We have salt and pepper and we have bread and butter, but we never have pepper and salt or butter and bread. When things appear with each other a lot, they start to stick. So when we're learning vocabulary, we can accidentally trick our brains into linking particular words more strongly than it should simply by having them appear next to each other a lot. This is one of the biggest risks with word lists -- in a list, each word is forced to co-occur with the rest of the words on the list, particularly those directly before and after. Reading the same list multiple times is almost guaranteed to create confusion by co-occurrence.
I've already demostrated how the two types of confusion by function combine to make a bigger problem, and of course all different forms of confusion can combine in this way.
I used to confuse my oats and my hazelnuts in Spanish. Both are food and go together in my breakfast bowl for a sort of home-made muesli (confusion by function of concept). They were stocked less than a metre apart in the local supermarket and I kept them next to each other in my kitchen cupboard (confusion by co-occurrence). Oats is "avena" and hazelnuts are "avellanas" (confusion by form). Even when I came back to Scotland, I still couldn't get the word right. Ironically, it is only when I started using this example that I became able to make the distinction correctly.
Lessons to be learnt
A learning technique cannot eliminate the confusions completely, but it must try to minimise them.
When evaluating a vocabulary learning strategy, or devising your own, look out for the 3 types of confusion. When you're learning, be mindful of your mistakes and what they tell you about how you're learning. If you can't think of a word, or keep getting it wrong, the chances are it's down to one of these types of confusion, and you should be able to refine or alter your technique to help you remember that word correctly, which over time should help you avoid making the confusion with new vocabulary in the future.