Although Musk has recently made this idea popular, it actually isn't anything new--the argument (also called the "simulation hypothesis") was made famous by Nick Bostrom in his 2003 paper titled Are You Living in a Computer Simulation? Questioning the basis of our reality is something that humans have done since the beginning of time. For example, the simulation hypothesis bears some resemblance to the philosopher Descartes' famous brain-in-a-vat theory posed in the seventeenth century, which inspired The Matrix--that humans don't realize that their world is just an illusion created while their brains are suspended in vats of liquid.
