In Cervantes' Don Quixote what did Sancho Panza mean when he said that a person who failed to see that the windmills were not giants must have other mills of the same sort in his head?

Sancho Panza meant that someone who couldn't see the windmills for what they truly were, windmills, must have a distorted view of reality, seeing things in a way that they are not. It implies that the person might have a tendency to let their imagination or fears cloud their judgment.