A Slate article, The Real Reason Children Love Fantasy, offers some reasonable explanations for why kids like the fantasy genre. Also illuminating are the false reasons kids like the genre:
Some explanations that might once have seemed plausible, and that are still current in the popular imagination, turn out to be just wrong scientifically. There is no evidence that fantasy is therapeutic or that children use fantastic literature to “work out their problems” or as “an escape.” Children’s lives can be tough, certainly, but relatively speaking they are considerably less tough, more protected, more interesting, even, than adult lives. Happy, healthy children are, if anything, more likely to be immersed in a world of fantastic daydreams, public or private, than unhappy or troubled children.
[link via Locus Online]