In its most basic meaning inspiration "implies, in a greater or lesser degree, the actual possession of the poet by a nonphenomenal being other than himself" (RM 120-21).

The term has an interesting history, which Barfield first traced in History in English Words:

    The meaning which inspiration possessed up to the seventeenth or eighteenth centuries carries us right back to the old mythical outlook in Greece and elsewhere, when poets and prophets were understood to be the direct mouthpieces of superior beings-beings such as the Muses, who inspired or "breathed into" them the divine afflatus. Through Plato and Aristotle this conception came to England at the Renaissance and lasted as an element of aesthetic theory well on into the eighteenth century, if it can be said to have died out altogether even now. But, like so many other words, this began in the seventeenth century to suffer that process . . . called "internalization". . . . we may suppose that from about this time inspiration, like some of the "character" words . . . began to lose its old literal meaning and to acquire its modern and metaphorical one. Like instinct, it was now felt, whatever its real nature, to be something rising from within the human being rather than something instilled from without. (HEW 203)
This history reveals the evolution of consciousness, though History in English Words only depicts its broad outlines. By the time of the publication of Poetic Diction two years later, Barfield was able to be more specific about the change:
    First, the poet was conceived of as being definitely "possessed" by some foreign being, a god or angel, who gave utterance through his mouth and gave it only as and when it chose. Then the divine power was said to be "breathed in" to the poet, by beings such as the Muses, at special times and places, over which he had some measure of control, in that he could go himself to the places and "invoke" the Muse. Finally this "breathing in" or inspiration took on the more metaphorical sense which it has today--definitely retaining, however, the original suggestion of a diminished self-consciousness. Inspiration! It was the only means, we used to be told, by which poetry could be written, and the poet himself hardly knew what it was--a kind of divine wind, perhaps, which blew where it listed and might fill his sails at some odd moment after he had whistled for it all day in vain. So we were told not long ago; but today we are more inclined to think of inspiration as a mood--a mood that may come and go in the course of a morning's work. (109)
What we now call imagination was once deemed inspiration. The transformation of one into the other, Barfield explains in Speaker's Meaning, signifies "a transition from the being taken hold of by something, some force or being, or some element of non-self, without any personal effort on the part of the poet, to an active taking hold of something by the poet--a producing, an animating, or reanimating of something within himself, which only his personal effort can make available to him." Consequently, "the content of his poetry changes from something that is 'given' to something that has to be actively grasped or achieved" (84-85).

But this transformation is not yet complete. In "Imagination and Inspiration," Barfield hints that imagination may, in turn, become "transformed inspiration. . . , accompanied by something like a transition from metaphor to transformed personification and from myth to symbol to transformed allegory" (RM 128).

See in particular Poetic Diction, passim and "Imagination and Inspiration" (RM 111-29).