In real analysis Cauchy sequence for $0$ is $(1/2,1/4,1/8,...)$.
But in non-standard analysis (hyperreal numbers) this sequence is infinitesimal $\varepsilon$.
Since hyperreal numbers are extension of real numbers I can't understand how $(0,0,0,....)=(1/2,1/4,1/8,...)$ and $\varepsilon=(1/2,1/4,1/8,...)$ since $0 \neq \varepsilon$.
How is it possible?
Downvoters, please explain where did I go wrong?
As Arthur's answer states, there is no contradiction here; you're just conflating two different notions of equivalence. The sense in which the sequence $(1,{1\over 2}, {1\over 4}, ...)$ "is" the number zero is quite different from the sense in which that sequence "is" a nonzero infinitesimal (and FWIW "represents" is better than "is" in this sort of context, since it engenders less of this sort of confusion).
To add to Arthur's answer, I'm going to give a very high-level and ahistorical framing of the two number system constructions which hopefully make the distinction between them more immediate.
Both standard and nonstandard (= hyperreal) analysis can be thought of as aspects of a single theme:
Here $\mathbb{Q}^\mathbb{N}$ is the set of all infinite sequences of rationals, with the operations of addition and multiplication being defined componentwise. Many "basic properties" of these arithmetic operations persist from $\mathbb{Q}$ to $\mathbb{Q}^\mathbb{N}$, but some care is needed here (e.g. think about division). Quotients of $\mathbb{Q}^\mathbb{N}$ are the structures we get by "identifying" certain elements of $\mathbb{Q}^\mathbb{N}$ with each other; I'll use the notation "$A/{\sim}$" to describe the quotient of a set $A$ by an equivalence relation $\sim$.
OK, technically I should also talk about "structure-respecting" equivalence relations, i.e. congruences, since even though you sort of can look at quotient structures by non-congruential equivalence relations we really shouldn't. But this isn't a serious issue here; all the equivalence relations involved in this answer will be congruential and that won't be the important point.
The standard approach is to first form the substructure $\mathsf{CS}\subseteq\mathbb{Q}^\mathbb{N}$ of Cauchy sequences, and then use the equivalence relation $$\alpha\approx\beta\quad\iff\quad \forall \epsilon>0\exists N\forall n>N[\vert \alpha(n)-\beta(n)\vert<\epsilon].$$ For example, letting $\alpha(n)=2^{-n}$ and $\beta(n)=0$ we do indeed have $\alpha\approx\beta$. The corresponding quotient $\mathsf{CS}/{\approx}$ is the standard reals.
The nonstandard approach is quite different. We skip the "substructure of" step, at the cost of performing a much more complicated quotient step. Specifically, start with a nonprincipal ultrafilter $\mathcal{U}$ on $\mathbb{N}$, and define the equivalence relation $$\alpha\sim_\mathcal{U}\beta\quad\iff\quad\{i: \alpha(i)=\beta(i)\}\in\mathcal{U}.$$ We then look at the structure $\mathbb{Q}^\mathbb{N}/\sim_\mathcal{U}$, which is our field of hyperreal numbers (note that it depends, in principal at least, on the choice of $\mathcal{U}$; we shouldn't say things like "the hyperreals").
The point is that the equivalence relations $\approx$ and $\sim_\mathcal{U}$ (fixing a choice of $\mathcal{U}$ for simplicity) are just different equivalence relations (and on different sets, for that matter, but that's a less substantive point here). For example, letting $\alpha$ and $\beta$ be defined as two paragraphs prior we have $$\alpha\approx\beta\quad\mbox{but}\quad\alpha\not\sim_\mathcal{U}\beta,$$ and there's no tension here at all. The only possible confusion comes from the conflation of two different notions of equivalence.
Incidentally, the whole "find interesting extensions of a structure $\mathcal{A}$ by looking at quotients of its power structures" theme is developed more systematically in universal algebra (see especially the $\mathsf{HSP}$ theorem), but that's a ways down the road.