1. A place or a state of being out of touch with reality.
2. A place known for frivolous activities.
Finally, a fictional land that is named after a real place. The term la-la land is coined from the initials of the city of Los Angeles, home of Hollywood, alluding to the fictitious nature of the movies, sets, etc.
"Stockwell Day is in the la-la land of Republicans, who for decades whipped up (white) fear of (black) crime and kept building prisons across America until there was no more money to build."
Haroon Siddiqui; Harper's Ottawa Becomes Republican La-la Land; The Toronto Star (Canada); Aug 8, 2010.
The entire "peace process" is an example of la-la land mentality. The idea that sworn enemies of the Jewish State of Israel can suddenly, by signing a piece of paper, become peaceful "friends" is totally "...out of touch with reality." And all of the fancy, professionally choreographed ceremonies and meetings are just "...frivolous activities."