From Psychology Today Online:
The world of only children
by Susan Newman
Jerome Singer with research scientist Dorothy Singer wrote, The House of Make-Believe: Children's Play and the Developing Imagination. The authors confirm that the imagination required to create make-believe friends "is not the exclusive property of the ‘only' child, the isolated, the ill, or the handicapped." Children with make-believe friends tend to be more imaginative, have richer vocabularies, and are better able to entertain themselves. Singer also discovered that children with imaginary friends get along better with classmates.
In the 1940s and 1950s, Dr. Spock (famous or infamous?) stated that children who have imaginary friends are less able to get along with other children and need to be put in group environments to develop the ability to relate to them. It has also been traditionally believed that children who create imaginary friends are either only children (singletons) or children with some sort of physical or psychological stressor(s) that they were failing to cope with.
Current research has challenged these ideas through extensive studies of children from preschool through seventh grade. It is now thought that a determining factor may be the introduction of a sibling; the first child may develop an imaginary friend to compensate for lost parental contact time or to rehearse, so to speak, being a sibling.
More often that not, children, more specifically toddlers, at some point will make up an imaginary friend. It could be another person or an animal. There is usually no real reason for concern when a child makes up an imaginary friend. They usually do this because during the toddler years they have incredible imaginations and they are very creative. They may talk and play with this friend which actually helps them to learn to communicate.
It is very important to remember that imaginary friends should never take the place of socialization with real people. It is very important that children get many opportunities to socialize with other children.