Imagination is defined in many ways, but one we like is, "the act or power of forming a mental image of something not present to the senses or never before wholly perceived in reality." This is no small task to little kids, and yet young childhood is a time in which imagination is developed more than any other. How does imagination develop in childhood? Through an increasingly sophisticated life of make believe.
We all likely have a sense of what we mean by make believe or good old "pretend play." How do experts define it, though? To some, there are different types of make believe that vary in sophistication and make pretend play different than other types of play. For example, kids may use objects to represent something else (e.g. a block becomes a cell phone). Or, they may start to give an object certain properties (e.g. a doll is asleep or a tree is on fire!). Still yet, they may themselves take on the properties of someone or something else.
From there, pretend play evolves into acting out scenarios or stories, those getting increasingly intricate as imagination develops. As kids' pretend play grows more sophisticated, these stories come to involve not only the creative use of objects, but multiple perspectives (e.g. good and bad guys in the same story), and/or the playful manipulation of ideas and emotions (e.g. I am sad, but then become happy after I save the village from certain doom).