You can tell by actually reading the account and knowing a little bit about the context. Plato's account is of a civilization that was defeated in a war with Athens ten thousand years before his time. Because Athens did not exist ten thousand years before Plato (something we can confirm through archeology) we know that Plato's account can't be true. Given that the point of the story is to demonstrate the importance of Athens, (according to the character Critias, Athens is so important that people in Egypt are still relating this story of something that happened thousands of years ago,) it's definitely a fiction.

Plato's dialogues were works of fiction that used fictionalized versions of real people as characters in order to illustrate philosophical points. The guy who relates the story of Atlantis is Critias, one of the members of the Thirty Tyrants, a clique who ruled Athens for a while, and Critias claims that he got the story from his distant ancestor Solon who was one of the lawgivers for Athens. To a contemporary of Plato's this would be as if he'd written a story about George Bush, relating a story that he'd gotten originally from George Washington, about how the United States had once fought a war against a long-lost evil empire back in the bronze-age. You weren't supposed to think it was true.