As you may know, officially the 21.5″ iMac cannot be used as an external monitor for another computer or laptop (unlike the 27″ iMac).
But with a little bit of hackery I was convinced it was possible to drive it as an external monitor using some kind of VNC software and something else that would convince the mac to extend it’s desktop without a physical connection being active. After some legowork I found you can drive the 21.5″ iMac as an external display using the following 10-minute method: (both computers must be on the same network)
1) Install Screen Recycler on the main computer you want to use. In my case, this is a Macbook pro, sitting on the table directly in front of me. You’ll have to reboot it. The free demo lets you stay connected for about 10 minutes before wanting you to pay for it.
2) Then install and run any VNC software on the target “monitor” computer and connect to the driving computer. JollyFastVNC (which came with Screen Recycler) was tested as far superior to my old standard ChickenOfTheVNC unfortunately.
Voila! The Screen Recycler demo page gives a good look at how this works.
A fast connection between the two computers is your best methodth to avoid the VNC low frame rate and quality issues. I would suggest a side-by-side configuration, leaving your macbook pro as the main windows (with the menu bar) and the iMac to the left or right of the external screen on the desk. And I would suggest leaving low-bandwidth windows on that iMac like mail.app and calendars and chat windows. Test it for yourself and see.