One of the most important skills children learn through literature is how to react to different situations. Reading allows children to experience situations vicariously, and think about what they would do in the character's place.
Even in the case of fantasy, this can be valuable. Our children may not fight evil trolls and wizards, but they could face challenges where they will need friends’ help, as Harry Potter did. They may not see their father defend a black man in an unwinnable trial, but they can appreciate the importance of standing up for what you believe in as Atticus Finch did.
Bibliotherapy, the process of using books to help those suffering from mental disorders, can be applied to children (sometimes called developmental bibliotherapy). Kids can be given books like Missing May when they lose a loved one. As with adults in therapy, children can come to understand their own problems and talk about them more easily through books.