Youngest daughter spent a few years running all ideas she couldn't quite fathom through her imaginary zebrahan herd--the queen would pass some law dealing with a question and she'd imagine the dramatized setting. It didn't always--or even often--seem to result in an understanding that reflected the real world, and we tried to explain why laws that demanded that zebrahans had to sacrifice to give their children an education were misplaced. (OK, see, yes they should do their best for their kids, but how is a queen going to know what their best is, and who died and made her God?)
Youngest son is now doing the same thing, except with his colony on Mars. We've had some very interesting discussions as a result. Of course, on Mars in a fragile colony you lose a lot of freedoms you take for granted on Earth (no pets, for example), but we've had some interesting times explaining to him why freedom of speech is a good thing, and why capital punishment for theft is a bit excessive.
I've noticed that when youngest son wants to imagine something new, put himself in a story, combine characters from different stories, and so on, he doesn't say "What if." He says "I had a dream that."