DD1 does this from time to time.
Sometimes I stand outside her door and listen to her telling them.
They're a bit like what we read to her at bedtime and sometimes she'll use characters from different stories we've read her or from CBeebies.
'It's Show and Tell in nursery and Poi brought her toy bear. Everyone loved it and some stroked it. Handa brought seven delicious fruits in a basket . . . '
Stuff like that.