What condition did Walter Mitty have?

It's not a "condition" at all, but just an overactive imagination coupled with a penchant for daydreaming.

The movie was based on a short story by James Thurber. In the story, Mitty accompanies his wife on a mundane shopping trip. To pass the time, Mitty has a succession of 5 "heroic daydreams", each of which parallel a situation he is in on his trip. It's sort of like that old adage, "Hindsight is 20-20", where you sort of imagine to yourself how a certain situation or conversation should have played out to your benefit. That's basically what he's doing, only in a very grandiose way.

in 1947 it was adapted for the screen, with Mitty being portrayed as "henpecked and harassed by everyone in his life including his bossy mother, his overbearing, idea-stealing boss Bruce Pierce, his childishly dimwitted fiancée Gertrude Griswold, and Gertrude's obnoxious would-be suitor Tubby Wadsworth and loud-mouthed mother, Mrs. Griswold." (1)

In this movie, he imagines all sorts of interesting lives he could be living which are extensions of his current life. Again, just more or less daydreaming about living other lives. The 2013 version of the movie was more or less the same idea, with a slightly different storyline.

If you ever saw the HBO show Dream On, it was very similar to this idea, except the daydreams were only a couple seconds long and were just short scenes from actual TV shows and movies. I loved that show, it was very creative. :o)

(1) Source: The Secret Life of Walter Mitty (1947 film)

According to the The Secret Life of Walter mitty Wiki
It might be CBS: Charles Bonnet syndrome which is also known as: Visual release hallucinations.

Visual release hallucinations is the experience of complex visual hallucinations in a person with partial or severe blindness. First described by Charles Bonnet in 1760,1 it was first introduced into English-speaking psychiatry in 1982

The Signs & Symptomes:

Mentally healthy people with significant vision loss may have vivid, complex recurrent visual hallucinations (fictive visual percepts). One characteristic of these hallucinations is that they usually are "lilliputian" (hallucinations in which the characters or objects are smaller than normal). The most common hallucination is of faces or cartoons. Sufferers understand that the hallucinations are not real, and the hallucinations are only visual, that is, they do not occur in any other senses, e.g. hearing, smell or taste. Among older adults (> 65 years) with significant vision loss, the prevalence of Charles Bonnet syndrome has been reported to be between 10% and 40%; a recent Australian study has found the prevalence to be 17.5%. Two Asian studies, however, report a much lower prevalence. The high incidence of non-reporting of this disorder is the greatest hindrance to determining the exact prevalence; non-reporting is thought to be a result of sufferers being afraid to discuss the symptoms out of fear that they will be labelled insane. People suffering from CBS may experience a wide variety of hallucinations. Images of complex colored patterns and images of people are most common, followed by animals, plants or trees and inanimate objects. The hallucinations also often fit into the person's surroundings.

But anyone can get it. It's pretty common for children at a young age to get it also, but people label that mostly as Walter Mitty Syndrome, where they imagine that they are the superhero of a movie in real life to defend their friends and idols. (Just an example, it can be in any form)