What it is:
Ideation is the act of forming ideas.
How it works (Example):
For example, let's say Company XYZ makes widgets, and it wants to get into the children's widget. Its product development team starts brainstorming ideas for specs, features and production methods.
This ideation process includes listing possible product features, designing prototypes, manufacturing prototypes, doing market research, and going back to square one with various iterations until something marketable and profitable emerges.
In a purely marketing context, ideation might involve creating an image board or concept for advertising.
Why it Matters:
Ideation is what many business people spend a significant time doing. Without creativity, experimentation and dreaming, businesses would be far less innovative and thus far less profitable.