The ability to form rich and varied mental images or concepts of people, places, things, and situations is the definition of:
a. pretending.
b. fantasy.
c. imagination.
d. day dreaming.

The ability to form richh and varied mental images or concepts of people, places, things, and situations is the definition of a good imagination - c. 

People who have good imagination are often able to do all of the things that are mentioned here as they can use their imaginations to imagine vidid places with rich inner lives and mental images.  

The ability to form rich and varied mental images or concepts of people, places, things, and situations is the definition of imagination.

Primary effectit is the most accurate.