I think that they just did not have a proper command of what the word meant.QUOTE] I think this fact was basically shown in the first example with Artman being able to make the kids "imagine" they were watching TV at home... They could imagine, they just had to have it explained to them what "Imagine" meant. Kids are generally renowned for having the best imaginations...they just don't know that what they are doing is imagining.
As for what imagination is, I basically agree with what other people have been saying. I think imagination is a degenerate replay of the actual experience. What I mean by that, is that when we 'experience' something, our brain does something in particular which creates that experience. I would say that memory is just an imperfect form of replication of that very same 'experience creation'.
And, as said by Raavin, I'd also say that only parts of it are remembered, so it is an imperfect replay of the experience, and much of the picture is actually extrapolated from the fragments we have.