One theory of how humans work is the so called predictive coding approach. Basically the theory assumes that human brains work similar to a kalman filter, that is, we have an internal model of the world that does a prediction of the world and then checks if the prediction is congruent with the observed changes in reality. Learning then comes down to minimizing the error between this internal model and the actual observations, this is sometimes called the free energy principle. Specifically when researchers are talking about world models they tend to refer to internal models that model the actual external world, that is they can predict what happens next based on input streams like vision.
Why is this idea of a world model helpful? Because it allows multiple interesting things, like predict what happens next, model counterfactuals (what would happen if I do X or don't do X) and many other things that tend to be needed for actual principled reasoning.
Why is this idea of a world model helpful? Because it allows multiple interesting things, like predict what happens next, model counterfactuals (what would happen if I do X or don't do X) and many other things that tend to be needed for actual principled reasoning.