Is not bad but you fail hard at CoC and your edited part.
CoC was never said to make illusion. This is not Genjutsu from Naruto.
You should workout. You would probably understand that imagination is way different from subconscious. Haki is not about imagination, imagining only helps you to learn. When working out imagining the muscle you are working on moving helps to isolate the work on them and improve your technique. Haki is similar, imagining the flow or where you will get hit helps you to really understand how it works. Once you master it your subcounscious do it without effort without requiring you to imagine things.
well, observation and armament are quite different from each other, while observation works on both conscious (searshing for someone) and subconscious (react to opponent's will) levels , you can strengthen it by going in a state of concentration and focus, while in regards to armament it's entirely conscious process, your body won't harden itself on it's own, and your haki won't flow outside of your body without your permission.
in some rare cases haki can activate unconsciously as a response to dangerous situations in the form of haki bloom triggers by survival instinct.
if you want your haki to take the shape of a demon, first you must establish a mental image of that demon through imagination, otherwise the haki would just flow shapelessly around your body or just completely disperse.
isn't it weird that luffy never showcased the ability to create the haki barrier and only used internal destruction that was given to him through survival instinct, when luffy tried to use haki barrier after hyo told him about the flow, he was imagining the haki flow through his body and into his fist which it did but it didn't have the same effect like when hyo and rayleigh used it because luffy didn't imagine it to be an invisible armor or a barrier.
also luffy needs to close his eyes and concentrate to do that
that could also explain why the version of ACoC that luffy used was crude and clumsy according to kaido.
CoC can influence creatures/people's minds, we saw on multiple occasion that CoC can be used to tame wild beasts, gain allies, and intimidate opponents or completely overwhelm them to the point where they lose consciousness, i'll even dare to say that it can be used to raise your allies morale during battle, if a conqueror wants people to see him as a demon CoC should make that possible.