So not too long ago I think I figured out why people read fiction. I couldn't understand it, why would you want to know stories that weren't true? I think it's all about the social intelligence. True stories are what they are whether they're good or not. Fiction stories can be whatever the author wants them to be, so they can craft them for maximum drama. Hence why they might be good for diving into social and emotional intelligence.
So if you read fiction stories to a child you might have a lot to work with to teach them how to read people and how to interpret their emotions.
I think that you're significantly over-analyzing this. People read fiction because it's enjoyable, they like to have their imagination tickled, and it doesn't have to be tuned for maximum drama. This is like saying that you now understand why people would watch a movie which wasn't a documentary.
People, in general, implicitly learn how to read people and their emotions without coaching -- it's a natural part of being human for most. Autistic people, of course, are the exception here.
So if you read fiction stories to a child you might have a lot to work with to teach them how to read people and how to interpret their emotions.