Nobody ever waits until they're 18 before becoming interested in sex, so naturally there was a time when I looked for drawings of girls my own age. Of course there were still some pictures that looked too young to me even back then, but there were other pictures that where crafted so well that I simply could not overlook their quality.
... And now I know why.
Loli's are not kids, they're short characters in "child" roles.
... And this is intentional.
So what is this... thing??
A "loli" is a convenient character design for a sexual story. It fills a "child" role in ways that a real kid definitely wouldn't. Unrealistic characters create unrealistic situations in order to portray inherently unrealistic fantasies. Simulating realism is obviously not the goal here.
It all depends on the story.
Okay but... why?
A naive character can create some tantalizing situations with very powerful sexual suspense. The audience is anticipating the outcome that the story is promising. All while the loli character is missing all the obvious clues being presented for the audience. And that's perfect for creating suspense.
No. Imaginary things are not illegal. In the US, there was once a law in 1996 criminalizing any depiction of minors in a sexual context, which also included fictional characters for some reason. By 2002, courts realized that worrying about imaginary people obviously wasn't going to save any real people. In their words, fictional depictions "... record no crime and create no victims by their production." The intent of the law is to prevent actual harm to actual people... who actually exist.