When we were kids, bedtime was made the most enjoyable for the wonderful stories that our grandmother told; those were mostly stories from Ramayana and Mahabharatha (but with a heavy folk flavour — as I realised later, when I read Ramanujan), which had a large element of the fantastical in them — a hero who would uproot and use whole trees for cooking fire but would be humbled by an old monkey whose tail he could not even move and so on and so forth.
Some good ideas have tumbled out of a lively discussion on the subject at Oxford’s Overcoming Bias blog, where Robin Hanson points out that fantasy helps us understand the world we live in, because it can “suppress irrelevant detail and emphasize important essences, like a math model.”
Eliezer Yudkowsky counters that fantasy is only useful when it helps us appreciate what we do in the “merely real” world.
Of course, this being the Freakonomics blog, the next paragraph is only natural:
Take a look!