Your body is a sophisticated system powered by muscles and controlled by nerves, most of which are in the brain. The nerve pathways in your brain that are most important in sport are trained by presenting them either with real stimuli or, almost as effectively, with vividly imagined images.
Imagery is the process of using your imagination to create these vivid images which train the important mental pathways in your mind. At its most menial level, imagery can be used to practise this 'body control center' when no other method of practice is available. At a more sophisticated level you can use it to enhance your self-confidence, to prepare for eventualities that cannot be simulated in reality, to practise other sports psychology skills, to practise and improve technique, and to focus before a skill is executed.
Simulation is similar to imagery in that it is used to present nerve pathways in your brain with experiences that train them. In the case of simulation, however, the stimuli come through your senses, not from your imagination. Simulation works by making your training sessions as close to the final performance as possible by introducing spectators, judges, distractions and stress inducers so that you can learn to deal with them. Simulation trains not only the nerves in your brain, but also those in the rest of your body as you physically perform the skills being trained.
Imagery and simulation can be used together at the same time to create an intensely realistic pre-experience of an important competition or event. This gives you the feeling of having been there before, with the confidence and competence that comes with it.