Fantasy, n.; pl. Fantasies.
Etymology: [See Fancy.]
1. Fancy; imagination; especially, a whimsical or fanciful conception; a vagary of the imagination; whim; caprice; humor. Is not this something more than fantasy Shak. A thousand fantasies Being to throng into my memory. Milton.
2. Fantastic designs. Embroidered with fantasies and flourishes of gold thread. Hawthorne.
1 other Webster entry under this spelling
Fantasy, v. t.
To have a fancy for; to be pleased with; to like; to fancy. [Obs.] Cavendish. Which he doth most fantasy. Robynson (More's Utopia).
Shades of meaning
Fernald has no entry of its own for fantasy; he lists it under dream, idea, imagination.
Where he writes about it:
To this Reproductive Imagination President Noah Porter and others have given the name of phantasy or fantasy (many psychologists preferring the former spelling). — from imagination
Phantasy or fantasy, so understood, presents numerous and varied images, often combining them into new forms with exceeding vividness, yet without any true constructive power, but with the mind adrift, blindly and passively following the laws of association, and with reason and will in torpor; the mental images being perhaps as varied and as vivid, but also as purposeless and unsystematized as the visual images in a kaleidoscope; such fantasy (often loosely called imagination) appears in dreaming, reverie, somnambulism, and intoxication. — from imagination
Fantasy in ordinary usage simply denotes capricious or erratic fancy, as appears in the adjective fantastic. — from imagination
Imagination and fancy differ from fantasy in bringing the images and their combinations under the control of the will; imagination is the broader and higher term, including fancy; imagination is the act or power of imaging or of reimaging objects of perception or thought, of combining the products of knowledge in modified, new, or ideal forms--the creative or constructive power of the mind; while fancy is the act or power of forming pleasing, graceful, whimsical, or odd mental images, or of combining them with little regard to rational processes of construction; imagination in its lower form. — from imagination