Lennon was asking us to imagine a place where things that divide people (religion, possessions, etc.) did not exist. He felt that would be a much better place.
This song is a strong political message that is sugarcoated in a beautiful melody. Lennon realized that the softer approach would bring the song to a wider audience, who hopefully would listen to his message.
Lennon later felt that this song should have been a Lennon/Ono collaboration. He got the initial idea from Yoko's book Grapefruit, which is a book of instructions, with things like "Imagine the sky crying..." or "Imagine you're a cloud.