It seems like all of the films set in modern day cities have an error, the people never know what zombies are even though zombies have been in popular culture for some time. Even parodies like "Shaun of the Dead" never touch on this phenomenon. Why wouldn't they know and if they did wouldn't they have to toil with myth and fact I think. It would make the stories that much more intriguing.
It's genre blindness (Warning! TVTropes link!). It's not just zombies, that happens in many genres. For example, when there's something frightening out in the woods, why do young teens split up in small groups, have sex, then wander about all alone, with the women wearing almost nothing? You'd think they'd know better because it's always when you're alone and often after you've had sex that you get killed in some gruesome way.
It also works for long running TV shows, like in Star Trek IV, when they arrive in San Francisco in the 1980s and Dr. Gillian Taylor hears Kirk's communicator beep and she doesn't make any Star Trek jokes, or for people in London who see a blue police call box and don't start making jokes about Doctor Who.
Essentially, in most cases, people have a blindness to the genre the film or TV show is part of. But there is also the exact opposite of this, genre savvy (Warning! Another TVTropes link!). This is when the characters show an awareness of what happens in movies or TV shows that are similar to their current situation. And they often point out all the connections to the tropes that show up in their situation or say, "I told you so," when someone comes up with a genre blind plan that fails.
+1 to Tango's excellent Genre Blindness answer.
And actually, it isn't that people in zombie movies never know what zombies are - in fact, there's more than one example of "the Z-word" being used in zombie films and television shows. The problem is that once that happens, suspension of disbelief seems to leave the room, and it gets harder to take the story seriously. So, you'll find that the shows and movies where the characters refer to these monsters as "zombies" tend toward comedy or horror-comedy: "Return of the Living Dead", "Z Nation", "Shaun of the Dead" (if I remember correctly), and so on. You'll be more likely to hear Shaggy and Scoobie Doo talking about zombies, than you are characters in a more serious zombie film.
"Zombie" is a bit of a misnomer, for what it's worth: zombie films are a somewhat different genre than what we think of, and there haven't been too many zombie films made since the 1930s, when the whole thing was tied up with Hollywood Voodoo. The monsters from the famous George Romero films were considered 'ghouls', and even some of the biggest fans of these films might be surprised to find that they're descended from a vampire story, "I Am Legend", filmed as the Vincent Price film "The Last Man on Earth (1964)", which, as one of the weirder vampire films ever made, seems to have been a big influence on "Night of the Living Dead (1968)". A better question might be why characters don't refer to these monsters as ghouls and vampires more often....