Like most children, the Finch kids and Dill have fun with the fear of a possible ghost, haunted house, and daring one another in regards to both of those things.
The Radley Place is fascinating because the children have made it mysterious. One of the inhabitants is an apparition-like figure they've nicknamed "Boo." Boo is occasionally glimpsed through a window but none of the children have ever met him.
The children build the place up in their minds, convincing themselves that if Boo "catches" them, they will come to harm. (See Ch 4) The children heighten their fear, adding new details all the time to Boo's history. When Jem is dared, he tries to scare the others as much as he is scared by saying "I don't think he's still there. He died years ago and they stuffed him up the chimney."
Eventually the children learn that all they have concocted is not the least bit true. Fortunately, they have learned this important lesson as children. The adults complicit in the accusations, trial, and eventual death of Tom are not as enlightened.