Imagination is one of the most fundamental processes within abstract reality. It is the method by which new ideas are constructed out of pre-existing ideas. The human faculty of reason is utterly dependent on imagination.

Fantasy, in its most basic and general form, is the product of imagination. Imagination is the cause and fantasy is the effect. While all reasoning employs some minimal degree of imagination, Fantasy literature is storytelling that maximizes the use of imagination. Fantasy and imagination are nearly inseparable. To criticize fantasy you must equally criticize imagination. Yes, imagination can involve conceptualizing things that aren't fact, but that doesn't make it unprofitable. Imagination is the essential ingredient of things like empathy, hope, invention, personal growth, and desire.

Fantasy stories prioritize abstract reality over physical reality. That is why it is not uncommon for fantasy stories to move into the realm of metaphor and allegory. In the genre of fantasy there is nothing wrong with drawing out meaning from circumstances and in that medium it is usually encouraged. Physical reality contains limits to the abstract ideas and principles an author and audience can explore. Fantasy allows the author to alter the physical rules of his imaginary world to better facilitate abstract explorations.

Non-fiction stories prioritize physical reality over abstract reality, or at least they are supposed to. For example, traditionally journalism is expected to be as objective and unbiased as possible. That would mean trying to avoid providing any philosophical inductions derived from the facts being presented. The more journalists attach meaning to the facts and insert their own opinions amidst them the less factual the stories become.

Keep in mind that non-fiction is not based on truth, but on fact. Most people wield the word "fact" as though it is synonymous with truth but that is not correct. Facts are beliefs that can be supported and proven by empirical evidence. That is not the same thing as truth. For instance, as scientific method has improved throughout history many ideas that were at one time held as fact have since been disproven, one of the most classic examples being the shape of the Earth. Or even a better example is the fact that I doubt anyone reading this would believe that every book in the non-fiction section of the local book store is 100% truth.

For more on that point you can read my essay "Science is not Reality".

Sometimes fantasy is criticized as escapism. Yet indulging in fantasy is not the problem with escapism. The problem with escapism is that it is dishonest. To indulge in escapism requires a desire to reject truth. Fantasy is not a rejection of truth, though people can use fantasy to reject truth. People also do not need fantasy to reject truth. That is actually worse. Then they are embracing falsehood as fact. That is total denial of truth. At least with escapism there is some awareness that they are living a lie.

As a side note, if at one time the world (at least as we know it) did not exist until God created it, that act of creation would have involved imagination, so then creation is a result of God's imagination and thus in a sense all of reality is God's fantasy.