From Wikipedia, because I'm lazy:

Many of the 'misunderstandings' from the characters' point of view are explained by the fact that Ishamael has acted like the Dark One for three millennia; mistaking him for Shai'tan, the Trollocs named him Ba'alzamon, and everyone else assumed Ba'alzamon was the name of the Dark One. Ishamael, when free, can use Tel'aran'rhiod; believing him to be the Dark One, Moiraine assumed in The Eye of the World that his appearances in dreams meant that the seals on Shayol Ghul were weakening greatly. Similarly, she wondered why he was able to appear in the sky at Falme, seeing as he is supposed to be bound in Shayol Ghul. Only after Ishamael was killed by Rand did she realize that 'Ba'alzamon' was a man, and thus clearly not the Dark One.

The long years and the strain of being torn between the world and a possibly endless sleep seem to have driven Ishamael insane. In addition, he was one of the privileged few that the Dark One allowed to touch the True Power, a raw source of energy akin to the One Power but emanating directly from the Dark One, and in some ways more powerful. Use of this gift was even more addictive than saidar or saidin however, and it drove users mad before they died. In any case, Ishamael came to believe that he was part of the eternal struggle between the Dragon and the Shadow, and that he had been a part of that struggle not only in the Age of Legends, but throughout time. He may have honestly believed that he somehow was the Dark One. Due to his continued appearance and leadership when all of the Forsaken were supposed to be bound and sealed, the Trollocs and other Shadowspawn came to call him Ba'alzamon, "Heart of the Dark" in the Trolloc tongue. Through them the world came to believe that Ba'alzamon was the Trolloc name for the Dark One as well.

After his permanent release from the Dark One's prison in NE 997, he hunted Rand al'Thor relentlessly, wounding him at Falme. He was finally brought to bay and slain by the use of the sa'angreal sword Callandor in the Heart of the Stone of Tear. It was only at that time that Rand learned that Ba'alzamon, his sworn enemy and persecutor for the first three books, was not in fact the Dark One, but instead Ishamael, and that Rand's battle against the Shadow had only just truly begun.