The relationship and differences between pinhole imaging and penumbral imaging are explained and discussed in detail. A Monte Carlo (MC) model for a practical fusion neutron penumbral imaging system, which is expected to be used as one of the diagnostics of the nuclear facilities in China, was established. The source consists of many assumed discrete elements whose sizes equal the minimum resolution of the imaging system and that are identical to the point source in general concept. The point spread functions (PSFs) of two assumed discrete elements, located in the center and at the edge of a 200-m field of view (FOV) in the neutron source face, were obtained for two cases, respectively: imaging in geometrical near-optics and the more real case of an MC numerical experiment. A series of PSFs of points in the diameter of FOV were obtained, and the PSF spatial shift invariance tolerances were tested within [approximately]20 m accuracy. Using mathematical analysis convolution and MC numerical experiments, "penumbral images" of a neutron source, which consists of just four discrete elements in 20-m space, were obtained. Employing the same program, the two penumbral images were reconstructed, and the obtained original source images were basically the same. This allows the nature of encoding and decoding by the neutron penumbral imaging aperture prototype, which was designed by our work group, to be visualized and realized.