Children dream quite a bit without the necessity of them believing that what they are dreaming or imagining is actually real.
When little boys play with toy soldiers and imagine epic scenes of battle while actually hitting two plastic figures together, it is fairly safe to assume they don’t actually believe that these are actual people meeting their legitimate demise.
They are able to discern between the imaginative and the real almost as well as adults are. But when you constantly and purposely lie to them in unison, still attached to the gullibility that stems out of their inherent innocence, they are inclined to believe you. But that is certainly not stimulating their imagination, nor is it making them dream — it’s forcing false beliefs on them.