Innovation is sometimes used synonymously with Invention and Improvement. Here is how I differentiate the three:
A never-before seen, brand new concept. Usually the product of scientific R&D or serious thinking. An example would be the creation of a new plastic compound.
A new invention or a combination of existing concepts made emotionally desirable and therefore commercially viable. Innovation happens when the new plastic compound is used to manufacture a toy.
A change that has minor impact on the fundamental nature of the underlying concept; but serves to extend the emotional appeal and on-going (usually short-term) commercial viability. To continue the example: the said toy is now available in different configurations.