I looked up similar and identical in the Oxford dictionary, and found the following definitions:
similar (adj) Having a resemblance in appearance, character, or quantity, without being identical.
identical (adj): Similar in every detail; exactly alike.
Each of the definitions use the other word as part of the definition, and this shows that the two words are definitely very related. If you look at the parts in italics, though, it becomes apparent that these words have a big difference. If you notice, the definition of similar specifically states, "without being identical", so that makes it pretty obvious that the two words are not the same.
So what is the difference?
Similar refers to when things have some things in common, yet differ in some way. Even if they have almost every detail matching, some tiny detail will not be the same.
Identical means that the things are exactly the same, with absolutely no deviations.
Are these words interchangeable?
No. They have two different meanings. If the items are different in any way, they can only be similar. If they match in every single aspect, they are identical.
Why do people mistakenly confuse the two words?
Well, why do people make any mistake? Many times it is just because they are uniformed and don't know better. Other times is because they don't think too much before choosing words to use. The words are after all very...um similar, so if a person is not too familiar with this vocabulary, or simply does not put much though into their actions, they can make an honest mistake.