Imagination is produced by voluntary consciousness of the will (Atma). It is the expressive power of the Nous cum soul and a directed by the will to create things and bring into action.
It is rooted in reality still connects to the future ( shooting an arrow to the future while your grounded in the present).
It is connect to higher goals and aspirations and known as Antahkarana that acts like the bridge between concrete and abstract worlds. It’s not an abstract thought experiment but it is the expression of the higher self and provides an impetus to create. always interlinked with action.
What transforms thoughts to action ? Imagination.
Fantasy is born out of emotional images and desire mind and does not obey the WILL (Atma).
It is disconnected from reality. It does not serve your higher needs and can become a mental cancer if kept unchecked. Fantasy is imagining a tree without harvesting the resources and nourishing the soil.
Imagination makes you an artist as you are always creative and constructive. Steve Jobs created fonts for Mackintosh as he was a visionary not someone who used fantasy as a tool of escapism. Similarly Einstein imagined himself travelling at the speed of light before he came up with theory of relativity. Imagination is what helps you live in a productive way else life becomes mechanical and mundane and allows you to bring your essence to whatever you wish to leave as a legacy behind you.
A poet described enlightenment as seeing the world in a grain of sand and heaven in a wild flower and hold infinity in the palm of your hand and eternity in an hour. Now that is an outcome of imagination. As long as you are getting closer to the values you aspire, you are being imaginative.