Your champ at this age gains the ability to distinguish between fantasy and reality as well as similarities and differences. At this age they can make out that all that gets relayed on TV is not reality and some of them are definitely fiction and some of them are factual. The same goes with story books. They tend to show interest in reading non-fairy kind of story books and those which are nearer to reality.
What you need to know
Parents who have a child suffering from bedtime fears can make them overcome this by making them realize what is real and fantasy, because these kids would have difficulties from distinguishing reality and fantasy. You can also note that emotions play a role in their understanding of fantasy and real.
Some kids still keep the fantasy of an imaginary friend or imaginary ways to get away from scolding or harsh words from elders. During these times, you have to show them the consequences of their imaginations/lying so that they would understand you cannot be made to believe their fantasy is real. This is also one way of teaching them to know the reality if they are not already aware of it.