Symbolism, Imagery, Allegory
The forest is always a mysterious place in literature, even in sweet poems like Robert Frost's "Stopping by Woods on a Snowy Evening." There's just no getting around it. According to Darwin, we humans came down out of the trees and moved into more substantial housing millions of years ago, and we've been a little ill at ease in the forest ever since then.
It's no surprise then that when Max is feeling overwhelmed with strong emotions, when he's feeling incredibly animal-like, he's compelled to go back to his primal roots: the forest. Trees grow up in his room, and they proliferate on the island of wild things. And this island, which is covered with a deep, dark forest, is where Max goes to explore the dark side of his emotions—the side of him that wants to act out physically but hasn't quite figured out how to do that without damaging the house or scaring the dog.
Max's retreat into the forest is a kid's version of looking into the darkness and mystery of the human soul. And once Max takes the time to acknowledge this wilder side of himself and to let it wear itself out, the forest disappears, and his room returns to normal.