It is first important to recognize what kind of story this is. It is about a young boy whose mother has died. His journey in the novel reflects his emotional growth, developing sense of identity and purpose, and acceptance of his mother's passing.
The Childlike Empress
The Childlike Empress does not rule Fantastica in the sense of giving orders - it's remarked upon several times that does not take sides between "good" and "evil" Fantasticans, and does not exercise temporal power. Thus the monstrous Ygramul the Many says:
Die Kindliche Kaiserin läßt uns alle gelten als das, was wir sind. Darum beugt sich auch Ygramul ihrem Zeichen.
The Childlike Empress accepts us all for what we are. That is why Ygramul bows to her sign.
In the centre of the novel, she climbs to the house of the Old Man of Wandering Mountain, who is her antithesis. The writing on the ladder tears at her clothing; she thinks that letters had never been kind to her (es war nichts Neues für sie, daß Buchstaben ihr nicht wohlgesinnt waren). She is a kind of creative wellspring for Fantastica, her health linked to that of the whole realm of story, but she herself defies being pinned down in writing. Her home, the Ivory Tower, cannot be penetrated without disaster.
For Bastian, the Childlike Empress is the first of several mother-figures he encounters in the story, and critically she disappears at the halfway point. Before that, her suffering and expression of love mirror that of Bastian's own mother, and drive him to the point where he can enter Fantastica in triumph. But then she is gone.
The AURYN, the double-snake amulet of the Childlike Empress, gives Bastian the power to make his wishes real. It is engraved on the back with "Do What You Wish" (Tu Was Du Willst), glossed by Grograman as that Bastian should follow his true will (daß du deinen Wahren Willen tun sollst) rather than his mere whims; his own deepest secret (dein eigenes tiefstes Geheimnis).
Bastian's uses of AURYN initially represent a childlish self-aggrandizement - to be strong, attractive, renowned, beloved. He also uses AURYN to become an author of the fates of others, with less than perfect results (creating the dragon, the Lake of Tears, and so on) which is part of his attempt to exercise direct control over the world around him. In so doing, he's following a naive belief that he has the wisdom and the right to override the will of others, essentially to declare problems solved by his fiat.
This too relates to the loss of his mother. His creations have an undercurrent of grief - tears for the apparent death of Grograman; a literal lake of tears around the Silver City, made by the incessant weeping of the Acharai; the loneliness of the Night Forest and the desert; the solitary wandering through the Temple of a Thousand Doors. He likewise pines to be loved, but he cannot create the real thing by his wishes. The best he can do is create renown, and fumble towards a genuine friendship with Atreyu without the aid of the amulet.
Each of his wishes is an exercise of power that fails to address his grief at the source. Each one takes away part of his own story.
Bastian's seduction by the witch-queen Xayide is the endpoint of this line of development. Her power is in pure emptiness (Alles, was leer ist, kann mein Wille lenken) and she is an empty mother-substitute. It is she who encourages Bastian to dethrone the Childlike Empress. She is tall and beautiful in his eyes, but separates him from his true friends. Bastian must reject her self-destructive nihilism in order to proceed.
The City of Old Emperors
Argax, the keeper of the City, shows Bastian the remnants of his predecessors who failed. They have lost all memory and meaning, and hence they do not age (Darum werden sie auch nicht älter). For Bastian to grow as a person, he must reorient himself to finding his true will once again. He must reject his previous self-indulgent use of AURYN and start again from the beginning.
In the final chapters, Bastian passes through:
- the sea of fog: a place without words or names, a kind of pre-birth existence
- the house of Dame Aiuola: the last mother-figure, who offers a wholly accepting environment as if to a baby, and is the first place where Bastian is able to acknowledge that his own mother has died
- Yor's Minroud: as a humble mine-worker, Bastian unearths a true memory of his father
- his failed creation, the Schlamuffen, who torment him as he can do nothing
- his final acceptance of Atreyu's love
- his return to his father in newfound maturity
In these last stages, Bastian does everything except seize power; he instead becomes subject to others and finally accepts his mother's death and its consequences. We see some hints there that he may regain some of the false glory he sought in Fantastica, but now earned. But that is another story, to be told another time.
The nature of power in the story has little to do with political power or governance. It is a matter of using ones innate power in the right way, in particular destined towards something other than oneself. Insofar as the Childlike Empress has power, it comes from not exercising it over others, but expressing pure innocence. For Bastian, he must forego attempts to cover his grief by clumsy solutions but instead achieve deeper self-knowledge.