#include <PubSubClient.h>
#include <ESP8266WiFi.h>


//EDIT THESE LINES TO MATCH YOUR SETUP
#define MQTT_SERVER "YOUR.MQTT.SERVER.IP"
const char* ssid = "YOUR_SSID";
const char* password = "YOUR_PASSWORD";

//LED on ESP8266 GPIO2
const int lightPin = 2;

char* lightTopic = "/test/light1";


WiFiClient wifiClient;
PubSubClient client(MQTT_SERVER, 1883, callback, wifiClient);

void setup() {
    //initialize the light as an output and set to LOW (off)
    pinMode(lightPin, OUTPUT);
    digitalWrite(lightPin, LOW);

    //start the serial line for debugging
    Serial.begin(115200);
    delay(100);


    //start wifi subsystem
    WiFi.begin(ssid, password);
    //attempt to connect to the WIFI network and then connect to the MQTT server
    reconnect();

    //wait a bit before starting the main loop
        delay(2000);
}



void loop(){

    //reconnect if connection is lost
    if (!client.connected() && WiFi.status() == 3) {reconnect();}

    //maintain MQTT connection
    client.loop();

    //MUST delay to allow ESP8266 WIFI functions to run
    delay(10); 
}


void callback(char* topic, byte* payload, unsigned int length) {

    //convert topic to string to make it easier to work with
    String topicStr = topic; 

    //Print out some debugging info
    Serial.println("Callback update.");
    Serial.print("Topic: ");
    Serial.println(topicStr);

    //turn the light on if the payload is '1' and publish to the MQTT server a confirmation message
    if(payload[0] == '1'){
        digitalWrite(lightPin, HIGH);
        client.publish("/test/confirm", "Light On");

    }

    //turn the light off if the payload is '0' and publish to the MQTT server a confirmation message
    else if (payload[0] == '0'){
        digitalWrite(lightPin, LOW);
        client.publish("/test/confirm", "Light Off");
    }

}




void reconnect() {

    //attempt to connect to the wifi if connection is lost
    if(WiFi.status() != WL_CONNECTED){
        //debug printing
        Serial.print("Connecting to ");
        Serial.println(ssid);

        //loop while we wait for connection
        while (WiFi.status() != WL_CONNECTED) {
            delay(500);
            Serial.print(".");
        }

        //print out some more debug once connected
        Serial.println("");
        Serial.println("WiFi connected");  
        Serial.println("IP address: ");
        Serial.println(WiFi.localIP());
    }

    //make sure we are connected to WIFI before attemping to reconnect to MQTT
    if(WiFi.status() == WL_CONNECTED){
    // Loop until we're reconnected to the MQTT server
        while (!client.connected()) {
            Serial.print("Attempting MQTT connection...");

            // Generate client name based on MAC address and last 8 bits of microsecond counter
            String clientName;
            clientName += "esp8266-";
            uint8_t mac[6];
            WiFi.macAddress(mac);
            clientName += macToStr(mac);

            //if connected, subscribe to the topic(s) we want to be notified about
            if (client.connect((char*) clientName.c_str())) {
                Serial.print("\tMTQQ Connected");
                client.subscribe(lightTopic);
            }

            //otherwise print failed for debugging
            else{Serial.println("\tFailed."); abort();}
        }
    }
}

//generate unique name from MAC addr
String macToStr(const uint8_t* mac){

  String result;

  for (int i = 0; i < 6; ++i) {
    result += String(mac[i], 16);

    if (i < 5){
      result += ':';
    }
  }

  return result;
}

The error is 'callback' was not declared in this scope