how did coleridge use his imagination to create a fantastic story? how does his story reveal truths about life or human nature?

As to the first part of your question, Coleridge gives us an epic sort of adventure. You have a great sea voyage, good and bad omens (Albatross= good omen) ghosts, angels, visions....Just scan the poem and you will find all these things. Coleridge has a pervasive theme throughout the poem. I hate to over-simplify but the mariner discovers (here it comes) that everything is beautiful in its own way. I know this sounds cheesy but that's it. The Mariner finds out that "all creatures great and small" have their place (especially that albatross) in the grand scheme of things. Humans tend to separate themselves from nature without realizing that we are but a small part of a greater system. Hey, that makes more sense today as it did back then!