I'm not saying that everyone who does this does it for this reason but...
I think daydreaming can be brilliant for anyone who wasn't able to fully socialise as a child, whether due to being in some way neurodivergent, being abused/bullied, being unable to spend enough time with others due to strong introversion, or being a bit isolated physically (no siblings/living somewhere out of the way).
I'm sure daydreaming about situations genuinely helped me practice my social skills when I didn't really have anywhere else safe to do so. Most successful behaviours I've learned I learned to start with by observing them in others as a third party and then roleplaying with them inside my own mind.
And of course "in times of stress you regress", so if your childhood didn't provide you with a solid enough foundation in socialising, it can help to go back over everything mentally from time to time, or even regularly. And the longer you go on having ok social skills, the better your chances of hanging onto them in times of stress, so the less need you might have to brush up on them, which could be one explanation for some people needing to daydream less as they get older.
That also goes for emotional processing. I think there's a reason they're called day dreams. Those of us who take a little more time to understand, or articulate, or come to terms with, how we feel might benefit more than others do from processing what's going on with us in this way. It can be like having your own therapist inside your head; always available and much cheaper than in person!
I don't know how people who don't daydream do process stuff, really, but perhaps they don't have such difficultly doing so in the first place. Though if that were the case I'd expect them to be healthier psychologically, and I'm not aware of any reason to think that that's true.