If your 3 yr old tells you there's a monster in their room early in the day, do you dismiss what they're seeing or feed into it asking them to describe what it is they saw?

Children (and adults) need to feel they are validated. So I'd say ask about what they saw and don't make any judgements. Go as far as inspecting their room and even banishing any evil dwellers. Do what you can to make them feel comfortable, and remember that children in all stages fear different things -- it's normal.