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1. How would you define imagination?
'would' is used as a polite way of asking a question.
2. How can you define imagination?
'can' is used as a way of questioning the possibility of something, like like, How is it possible to define imagination? Is is possible? I don't see how it's possible. (e.g, "How can you watch TV and do your homework at the same time?. Past tense, How could you do that?)