You can start at any age where your child can understand what you are saying!
Just say, "Now close your eyes. Imagine you are walking on the beach. Can you hear the ocean waves? Can you feel the wind blowing against you? Look up - see all the birds flying up there?" etc. etc. You can also ask them to describe what they see, eg., "How many birds do you see flying up there? Are there any other children on the beach? What are they doing?" etc.
Felicity nowadays tells us specifically what type of story she wants to imagine and for us to tell her. Recently, it's along the lines of, "I want to imagine myself on the beach, and being eaten by a crocodile, and a handsome prince comes to rescue me!" Seriously!