[Guinevere]

Tolkien answered the question about the word "Middle-earth" in several letters to readers and publishers

from letter #165
"Middle-earth", by the way, is not a name of a never-never land without relation to the world we live in. It is just a use of Middle English middel-erde (or erthe),altered from Old English Middangeard: the name for the inhabited lands of Men "between the seas". And though I have not attempted to relate the shape of the mountains and land-masses to what geologists may say or surmise about the nearer past, imaginatively this "history" is supposed to take place in a period of the actual Old World of this planet.

from letter #183:
I am historically minded. Middle-earth is not an imaginary world. The name is the modern form (appearing in the 13th century and still in use) of midden-erd> middel-erd, an ancient name for the abiding place of Men, the objectively real world, in use specifically opposed to imaginary worlds (as Fairyland) or unseen worlds (as Heaven or Hell). The theatre of my tale is this earth, the one in which we now live, but the historical period is imaginary. The essentials of that abiding place are all there (at any rate for inhabitants of N.W. Europe), so naturally it feels familiar, even if a little glorified by the enchantment of distance in time.

from letter #211
I have, I suppose, constructed an imaginary time, but kept my feet on my own mother earth for place. I prefer that to the contemporary mode of seeking remote globes in "space". However curious, they are alien, and not lovable with the love of blood-kin.
Middle-earth is not my own invention. It is a modernization or alteration of an old word for the inhabited world of Men: middle because thought of vaguely as set amidst the encircling Seas and (in the northern imagination ) between the ice of the North and the fire of the South.

The "'different stage of imagination" I read as "imaginary historical period"