True art appeals to the imagination whereas effects elicit fantasy. Imaginary things are pondered, fantasies are acted out. [...] A fantasy desire seeks neither a literary description, nor a delicate painting of its object, but a simulacrum — an image from which all veils of hesitation have been torn away. It eschews style and convention, since these impede the building of the surrogate, and subject it to judgment. (104–105)The defining characteristic, then, is that imagination (the operation from an aesthetic interest) creates a distance, where fantasy destroys every distance (104). And it's not just an arbitrary sort of distance, but one that comes from inserting elements that have to do with the specific capacities I described in my post about our appreciation of the craft (in products of the imagination). Since fantasy destroys the distance that is essential in imagination, no beauty and real emotion can survive in it.
Scruton illustrates that point with respect to different subject matters: one is sexual fantasy, facilitated by pornographic images: "pornography lies outside the realm of art, [...] is incapable of beauty in itself and desecrates the beauty of people displayed in it. The pornographic image is like a magic wand that turns subjects into objects, people into things — and thereby disenchants them, destroying the source of their beauty." (163)
Another one is theatre. There, "the action is not real but represented, and however realistic, avoids (as a rule) those scenes which are the food of fantasy. In Greek tragedy the murders take place off stage [...]. The purpose is not to deprive death of its emotional power, but to contain it within the domain of the imagination" (106).
Imagination, as I would put it in the terms used on this blog, engages us in the creation of unreality, whereas fantasy does no such thing for us. It leaves us in the world of reality, and quite probably in a worse way than most alternatives. Since Scruton doesn't use 'unreality' in the technical sense I do, he assigns 'unrealities' both to imagination and fantasy, but that's a difference in terminology only; Scruton's 'unrealities' of fantasy are within our world, not within any world of the imagination: "while the unrealities of fantasy penetrate and pollute our world, those of the imagination exist in a world of their own, in which we wander freely and in a condition of sympathetic detachment." (105) It's that distance which is amiss in fantasy, which is why it wouldn't qualify as unreality (produced by the activity of imagination) in my sense. Fantasy is precisely an example for what it looks like when you take imagination out of the picture: not unreality, but a de-humanized reality.
[1] In his Beauty. Oxford: Oxford University Press 2009. Quoted with page numbers in the text.