This can really go multiple ways. There's always been children who have played as being cats or elephants or what have you. I know a child who spent a week insisting they were a dog. They were 4 and didn't watch YouTube. Their mum humoured them and they got over it. (If they hadn't, then knowing the mum, she would have done something, but she decided to see if it passed first, and it did.) If they know it's pretend then it's really like any other fantasy play and harmless, just make sure she hasn't got any friends who have been watching dicey things on YouTube.
Furries, by the way (whatever other problematic aspects the culture has) know they're not really wolves or lions. I wouldn't want my younger child getting into it because of the kink aspect of furries, but they grasp the difference between fantasy and reality. (The stories that keep cropping up about litter boxes in schools always turn out to be false and I am convinced at this point that teens know about the stories, so they're wearing cat ears to school and meowing to wind up the teachers.)
Therians and otherkin are another story. This is about believing you essentially are another species. This is impossible. You cannot remember your past life as a dragon because there's no such thing as a dragon. (Also, when people remember their past lives, they were never a peasant who died of malnutrition at a young age.)
It's not like Native spiritual beliefs about animal totems (by the way, North American Indigenous people really hate white people talking about "spirit animals") because again, it's not that you are a wolf or a bear, it's that you have some spiritual connection to them. I am autistic and have 2 autistic children so am very familiar with autism & identity & sexuality issues but I do not think that this is psychologically healthy, and it seems to be one of those recent viral fads (I would not compare it to trans for multiple reasons).