Why We Need Fairy Tales

"Professor Tolkien asked me this simple question,
'What class of men would you expect to be most preoccupied with and most hostile to,
the idea of escape?’ and gave the obvious answer: 'jailers.'" C.S. Lewis

At Between Two Worlds, there is a fine post about the role of fantasy in the life of a child. It links [see below] to Tolkien's essay "On Fairy Stories" that contains his well-known description of the relationship of story and Gospel.

In Faerie Gold: Treasures From The Land Of Enchantment (a collection of classics for young readers), Kathryn Lindskoog and Ranelda Mack Hunsicker include a message to parents and teacher entitled "Why Do We Need Fairy Tales and Fantasy?" [...] The classic case for fairy tales is J.R.R. Tolkien's On Fairy Stories (PDF). Highly recommended reading.

And here's a quotation from C.S. Lewis on why he preferred fairy tales to "realism":

By confining your child to blameless stories of child life in which nothing at all alarming ever happened, you would fail to banish the terrors, and would succeed in banishing all that can ennoble them or make them endurable. For in the fairy tales, side by side with the terrible figures, we find the immemorial comforters and protectors, the radiant ones; and the terrible figures are not merely terrible, but sublime. It would be nice if no little boy in bed, hearing or thinking he hears, a sound, were ever at all frightened. But if he is going to be frightened, I think it better that he should think of giants and dragons than merely of burglars. And I think St. George, or any bright champion in armour, is a better comfort than the idea of police.
"On Three Ways of Writing for Children" 

In the Tolkien essay mentioned above is found his famous description of "eucatastrophe" - the good turn characteristic of a good fairy story - and the relationship of such stories to the true Eucatastrophe found in history:

The Gospels contain a fairystory, or a story of a larger kind which embraces all the essence of fairy-stories. They contain many marvels—peculiarly artistic, beautiful, and moving: “mythical” in their perfect, selfcontained significance; and among the marvels is the greatest and most complete conceivable eucatastrophe. But this story has entered History and the primary world; the desire and aspiration of sub-creation has been raised to the fulfillment of Creation. The Birth of Christ is the eucatastrophe of Man's history. The Resurrection is the eucatastrophe of the story of the Incarnation. This story begins and ends in joy. It has preeminently the “inner consistency of reality.” There is no tale ever told that men would rather find was true, and none which so many sceptical men have accepted as true on its own merits. For the Art of it has the supremely convincing tone of Primary Art, that is, of Creation. To reject it leads either to sadness or to wrath.

It is not difficult to imagine the peculiar excitement and joy that one would feel, if any specially beautiful fairy-story were found to be “primarily” true, its narrative to be history, without thereby necessarily losing the mythical or allegorical significance that it had possessed. It is not difficult, for one is not called upon to try and conceive anything of a quality unknown. The joy would have exactly the same quality, if not the same degree, as the joy which the “turn” in a fairy-story gives: such joy has the very taste of primary truth. (Otherwise its name would not be joy.) It looks forward (or backward: the direction in this regard is unimportant) to the Great Eucatastrophe. The Christian joy, the Gloria, is of the same kind; but it is preeminently (infinitely, if our capacity were not finite) high and joyous. But this story is supreme; and it is true. Art has been verified. God is the Lord, of angels, and of men—and of elves. Legend and History have met and fused.

Between Two Worlds: Why We Need Fairy Tales and Fantasy