@Murrmurr
Children want to know the difference between fantasy and reality from an early age.
I remember telling the story about an American passenger plane that was diverted to a Canadian island in the aftermath of the attack on the Twin Towers to my Sunday School class as part of a lesson on the subject "and love your neighbour as yourself". The crux of the story was how the inhabitants of the smallish island took the shocked passengers into their homes and cared for them lovingly until it was safe for them to continue their journey home.
The first question that the children asked was "Is this story true?" and I was able to assure them that it was and the generosity and love shown did actually happen just as I had related the event.
We should be careful not lie to children because once they realise that they have been lied to, they become distrustful, even of the truth. We see a lot of this in some adults at the moment. I think I might be beginning to understand where that distrust is coming from.