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The context is: "Santato wasn't spinning fairy tales.".

It means "fantasy"?

Thank you in advance!

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Here's my totally off-the-top-of-my-head, unresearched answer: "Spinning" a fairy tale basically means to tell a story you are making up as you go along. I believe this comes from the fact that the word "yarn" is sometimes used as a colloquialism for "fictional story". Yarn is made through a process called spinning, and so when you are telling a story you are "spinning a yarn". I think the verb "spinning" has oozed out of that construction and is sometimes now used on its own to refer to the telling of a story.

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Oh, thank you! I thought "spinning" is a "adj". After reading your lines, I think it's in the form of "was not doing" . – Lincoln Apr 11 '14 at 4:42
@Lincoln - Yes, in this case, "spinning" is a verb. See Macmillian Def. #6: to tell a story, especially one that is not true, in an interesting and exciting way. So, "Santato wasn't spinning fairy tales" means, "Santato was telling the truth!" – J.R. Apr 11 '14 at 9:33
Thank you! @J.R. I forget the name of Macmillian Dictionary, and just check the Oxford dictionary... – Lincoln Apr 12 '14 at 7:06
@Lincoln - Don't forget about OneLook; that will hook you up with Oxford and Macmillan – and a dozen or so more good dictionaries, too! – J.R. Apr 12 '14 at 10:22
@J.R. Wow, OneLook is good ! Thank you! – Lincoln Apr 17 '14 at 1:43

From The Free Dictionary, spin:

"to produce, fabricate, or evolve in a manner suggestive of spinning thread: to spin a tale."

I believe this is the meaning here. It could be restated as:

Santato wasn't just imagining [and telling] fairy tales [but was telling the truth].

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Agreed. Today "spin" is often used in relation to political "story telling" to distort what is (or was) said, or at least to emphasize what's advantageous to your side -- to put "spin" on an event or story to accrue advantage over an opponent. – Phil Perry Apr 11 '14 at 13:48
I see that as a subtly different meaning. "spin" in the political sense is to twist the true story, while "spin" here is an outright fabrication. – Tim S. Apr 11 '14 at 13:51
Well, in politics you twist a true story by introducing false material, exaggerating aspects of [the true story], overemphasizing parts advantageous to you, and not mentioning/belittling/silencing discussion of parts disadvantageous to you. There are still falsehoods involved. – Phil Perry Apr 11 '14 at 13:58

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