Where does imaging come from?

Imaging is created in your brain, by the effects of your ears hearing the different sounds coming from the 2 channels of the speakers. Ears work in binaural, and can "triangulate" the position of an object based on the way the sound reaches both ears. When the recording simulates this, it appears to the listener as an "image" that is located in a certain place.

I understand the physiological part, but my question is how is the information coded at the studio for imaging to occur? Especially in sessions where all the artists are recorded individually...

Is it a simple matter of the studio engineer using a "balance" knob (to create left-right imaging) in conjunction with a volume knob and a basic effect knob (to create depth), much like on a stereo?

I always thought that the "Imaging Fairy" sprinkled it on your system??? :)~

Yes, it's like using a balance knob on the mixing board. It's called "panning".

so panning accounts for left-right axis imaging and volume accounts for depth?

Dubzilla, what you described above - balance, volume, effects - are all part of audio engineering. However, there is a lot more to audio engineering than just panning, volume and effects. Depth, height, air, etc is heavily dependent on miking/recording technique. This is how the real imaging magic is captured.

Without good miking/recording technique, mastering can only go so far...

For studio albums where each instrument is recorded individually :
a) Imaging is done with a balance control.
b) depth can often be achieved through compression and/or reverb. For example compressing the vocals has the subjective effect of bringing them closer to the plane of the speakers. Less compression pushes sounds to the back of the mix.
Also a sense of depth can be achieved by adding reverb (either natural using a reverberant room) or artificial to the sound ... conversely removal of reverb (via very close mic'ing and a very dead room) brings a sound closer to the front of the mix.

"the studio engineer creates the imaging effect"

I didn't think the engineer did much (creating) on purist recordings like Pope's and Telarc. They set the two good mike's up properly (to capture the imaging) and it went straight to the master (how TWL said). Q sound stuff like Madonna's "Immaculate Collection" and Roger Water's stuff are different. And the mixing processes I don't know (but I won't/can't argue with the other comments here--panning and volume).

No doubt the rooms acoustics for the original recording have a large impact on how things turn out too. The noise floor in the concert hall itself.

Stereo is not just two mono channels with different signal content. Each channel gets out of phase information from the other channel in a way Im sure I cant explain. This gives the illusion of stereo. Maybe someone with some understanding of recording can shine some light here.