Is it just self-talk, daydreaming or some mental issues?

[FreeMyself]

This has been going on for how many years now (5-6 years, I guess). I always imagine a group of people. I talk and physically interact with them. Sometimes, I imagine that I am dancing with them or making jokes with them. I only physically interacts with them when I am alone and whenever am not, they are only in my head, talking to me still.

The people that I am imagining changes from time to time and scenarios as well. I voluntarily change it depending on my preferences on how my imagination would be. I always tend to portray myself as someone of great importance and with some impressive skills, talent and intelligence.

I tried stopping it by letting myself be surrounded with people and be in public but after a day or two, I would always go back in my room and be alone, imagining to be with them again. I tried suppressing it whenever I'm in public and with other people.

Sometimes, I would feel like it is okay, at least I've got some company. However, it still concerns me though whenever I realized how weird it is to talk, dance and interact to someone who's not there.

[Paxiled]

If what you describe is how it looks, it sounds like you've been retreating more and more into an imaginary world.  If that's what is going on, I would suggest it's time to see a psychologist to both work on why you're doing this and how to stop doing this.  It's one thing to have an imagination, and people have their own internal worlds.  We all do.  But to withdraw from the world to live in that internal world is not a good place to go.