Imagination and fancy differ in kind. These are activities of two different kinds. Fancy is not a creative power at all. It only combines what it perceives into beautiful shapes, but like the imagination it does fuse and unify. The difference between the two is the same as the difference between a mechanical mixture and a chemical compound. In a mechanical mixture a number of ingredients are brought together.
They are mixed up, but they do not lose their individual properties, they still exist as separate identities. In a chemical compound, on the other hand, the different ingredients combine to form something new. The different ingredients no longer exist as separate identities. They lose their respective properties and fuse together to create something new and entirely different. A compound is an act of creation; while a mixture is merely a bringing together of a number of separate elements.
Thus imagination creates new shapes and forms of beauty by fusing and unifying the different impressions it receives from the external world, Fancy are not creative. It is a kind of memory; it arbitrarily brings together images, and even when brought together, they continue to retain their separate and individual properties. They receive no coloring or modification from the mind. It is merely mechanical juxtaposition, and not a chemical fusion.