Learn Portuguese (Portugal): O cão fez uma confusão quando isso aconteceu.

Fez is the simple past tense form of the highly irregular verb fazer (to do/to make) for the ele/ela/você (he/she/you) forms. Because it is irregular, it changes its stem completely and does not use the standard endings. You just have to memorize that the dog (he) fez.

Does uma confusão literally mean "a mess"?

Literally, it translates to "a confusion". However, in Portuguese, fazer uma confusão is the standard, natural way to say "to make a mess" (like tearing up a room) or "to cause a commotion".

We have fez and aconteceu in this sentence. Do they follow the same past tense rules?

No. While fez is a completely irregular form of fazer, aconteceu (happened) follows the regular past tense rules for verbs ending in -er. You just drop the -er from the infinitive acontecer and add the regular third-person ending -eu.

Why is isso used for "that" instead of aquilo?

Both words mean "that", but isso is used to refer to an idea or event that was just mentioned in the conversation. Aquilo is used for things that are physically or conceptually distant from both the person speaking and the person listening.