Dill's wishful thinking about having a baby with Scout is an innocent and fanciful notion that serves at least two purposes: He believes that he and Scout could bring up a child in a much more loving and caring way than his own parents have done; and he thinks that a baby could cement their relationship, probably so he won't have to return home to Meridian again. Of course, Dill's dreams are just that. Neither he nor Scout have any idea how a real baby is produced. Dill believes that
There was a man... who had a boat that rowed across to a foggy island where all these babies were: you could order one--
But Scout knows better.
"That's a lie. Aunty said God drops 'em down the chimney."
Bringing up a baby with Scout is just another way of seeking the happiness he so desires--by "the magic of his own inventions" in "his own twilight world."
Dill actually does show himself cognizant of the real facts about babies when he tells Scout that "you get babies from each other." It certainly is true though that, even when he knows the facts, he prefers to ignore reality and to take refuge in his own world of dreams and fancies. He pictures an innocent, idealized family life with Scout, away from all the harsh realities of life. It is an endearing form of childish escapism.
Dill shows his imaginative tastes right from the beginning of the story when he is the one to conceive the idea of trying to make the supposed phantom-next-door, Boo Radley, emerge. Scout is continually entertained by him, by his stories and inventions and dramas - all the more so when the more grown-up Jem increasingly leaves her to her own devices. However, Dill and Jem also spend time together in more boyish pursuits, leaving Scout out, which annoys her. She often feels neglected by Dill and beats him up for it, but it doesn't make any difference. Dill provides drama, comedy and romance in the young Scout's world.