First off, the “imagination” in the title is a translation of the word usually translated as “representation” or “idea” in Schopenhauer’s “Die Welt als Wille und Vorstellung” - namely, “Vorstellung”. Other possible translations include “show” and “vision”.
Nietzsche’s conception of the world as will to power is well known. What may be less well known is that this means the world is will to power to will to power to will to power etc., until the circle is round.
In an important passage, Nietzsche writes:
“Suppose nothing else were ‘given’ as real except our world of desires and passions, and we could not get down, or up, to any other ‘reality’ besides the reality of our drives - for thinking is merely an interrelation [Verhalten] of these drives to each other: is it not permitted to perform an experiment and to ask the question whether this ‘given’ would not be sufficient for also understanding on the basis of this kind of thing the so-called mechanistic (or ‘material’) world? I do not mean as a deception, as ‘appearance,’ a ‘representation’ (in the Berkeleian or Schopenhauerian sense), but as holding the same rank of reality that our affect has - as a more primitive form of the world of affects in which everything still lies contained in a powerful unity before it undergoes ramifications and developments in the organic process (and, as is only fair, pampered and weakened, too), as a kind of instinctive life in which all organic functions, along with self-regulation, assimilation, nourishment, excretion, metabolism, are still synthetically linked with one another - as a pre-form of life. […] The question is ultimately whether we really recognize the will as efficient, whether we believe in the causality of the will: if we do - and at bottom our faith in this is nothing less than our faith in causality itself…, then we must perform the experiment of positing the causality of the will hypothetically as the only one. ‘Will’, of course, can have an effect only upon ‘will’ and not upon ‘matter’ (not upon ‘nerves’ for example…): in short, one has to risk the hypothesis whether will has an effect upon will wherever ‘effects’ are recognized - and whether all mechanical occurrences are, insofar as a force is active in them, will force [Willenskraft], effects of will. Suppose, finally, we succeeded in explaining our entire instinctive life as the development and ramification of one basic form of the will namely, of the will to power, as my proposition has it; suppose all organic functions could be traced back to this will to power and one could also find in it the solution to the problem of procreation and nourishment - it is one problem - then one would have gained the right to designate all efficient force unequivocally as: will to power. The world viewed from inside, the world defined and described by its ‘intelligible character’ - it would be simply ‘will to power’ and nothing else.”
[Beyond Good and Evil, section 36.]
This is a nice, but exoteric passage. For Nietzsche did not believe in causality. The only thing he absolutely believed in, his “cogito ergo sum”, was “cogito ergo est”:
“Fundamental certainty. - “I imagine” [“Ich stelle vor”], therefore there is a Being [ein Sein - not to be confused with “a being” as in “a human being”; that would be ein Wesen]: cogito, ergo est. - That I am this imagining Being, that imagining is an activity of the ego, is no longer certain: just as little is everything that I imagine. - The only Being that we know is the imagining Being. […] Characteristic of imagination is change, not motion: passing away and coming to be, and in imagining anything persistent is lacking. On the other hand, it posits two persisting things, it believes in the persistence of 1. an ego, 2. a content; this belief in persistence, in substance, i.e. in the remaining identical thereof with itself, is a contradiction with the imagination process itself. […] Inherently clear, however, is that imagining is nothing resting, nothing identical-with-itself, unchangeable: the Being therefore, which alone is guaranteed to us, is changing, not-identical-with itself, has connections [Beziehungen] (conditions, thinking must have a content, in order to be thinking). - This is the fundamental certainty about Being. But imagining predicates precisely the opposite of Being! But that does not mean that it is true! But maybe this predication of the opposite is only a condition of the existence of this kind of Being, of the imagining kind! That is to say: thinking would be impossible, if it did not fundamentally mistake the essence of esse [das Wesen des esse]: it must predicate substance and that which is identical [das Gleiche], because a cognition [ein Erkennen] of the completely fluent is impossible, it must impute properties to Being in order to exist. There need not be a subject or an object for imagation to be possible, but imagination must believe in both.”
[Nietzsche, Nachlass.]
The predicates of imagination and the will are the same. “I imagine something” and “I desire something” are identical grammatical constructions. Both predicate an ego and a content. But “I desire something” is really “I imagine a desire of something”. So our world of desires and passions is not given as real, but only as imagined. The imagining Being is the only thing that is “given” as real. This is in complete accordance with the fact that Nietzsche called the will to power “not a being, not a becoming, but a pathos” [in The Will to Power, section 635] - an event. This event may be completely imaginary.