Why do people say that trauma makes you a better writer? Is it true that if you face things like pain, illness, death or narcissistic family abuse, that should make you a better writer or creative? I'm healing but I just have severe writer's block.

I have no idea why people say dumb things but they surely do. If you were a mediocre writer and then suffered a traumatic event then you would need to heal from your traumatic event, after which you would be a mediocre writer with a history of trauma. Authors whose work we know and whose life story incorporates traumatic events do not ‘become better authors’ sometimes they took years to recover again to write anything else. I am sorry about your pain, take time to heal and give yourself a break with respect to your writer’s block.