I believe that you are referring to an excerpt from the Diary of Anne Frank - Anne (As she opens the carton). You know the way I'm going to think of it here? I'm going to think of it as a boardinghouse. A very peculiar summer boardinghouse, like the one that we - (She breaks off as she pulls out some photographs.) Father! My movie stars! I was wondering where they were! I was looking for them this morning . . . and Queen Wilhelmina! How wonderful!
The answer would be the second choice - She uses her imagination to make herself feel better. She uses her imagination as her defense mechanism to forget about her situation.