Children projecting imaginary friends and situations is a fractal version of Spirit being/inhabiting all things. It also illustrates how you—the self, the thinker—really do not exist.
You are only ever thought, not an entity separate from it. The egoic self is not more than thought—the thought that mistakes itself for a thinker. This is easy to declare but is hard to see as actually true. However, examples abound. Just look at children when they play with imaginary friends. Imaginary friends are the self broken into other “holographic” selves. When a child projects aspects of themselves into the room as invisible friends and interacts with them, they are so immersed in the reality they are creating, they forget they are the creators of it. In fact, they may not realize it at all. Invisible Jim and Jane feel like they have their own autonomous thoughts and feelings and motives and bits of dialogue, yet these are all coming from the child. All of these thought forms, intricate and simple alike, are one thought form: the child imagining. But the child believes the imaginary friends are separate, numerous thinkers, not a singular projection of fantasy. Similarly, we consider ourselves as beings separate from our thoughts, but they are us.
Incidentally, in most cases the imaginary friends scenario of childhood doesn’t end there, not completely. It transforms as we get older and acquire actual friends. Instead of projecting friends and acquaintances into the room, we project ourselves onto those people already in the room. What we foist upon them is a mixture of (at least) our psychological baggage, our hopes and dreams, our suspicions based on our first encounters with them, and whatever image we’ve built of them through time. Rare is the person who meets an old friend anew every meeting. Instead, we create a virtual reality that we claim is how the world works, how people truly are, but our view of the world always says more about us than anyone in it we are talking about.
This is not completely unhealthy. Forming images of others has its place in keeping us safe from the likes of murderers, rapists, criminal CEOs, and politicians. Even that defense mechanism can become its own neurosis, though, or worse. But, if we see all of this clearly, perhaps something changes. Perhaps thought settles down. What happens when thought ceases while the brain is alive?
Ask it and have the courage not to imagine an answer.