Here are excerpts from a Canadian Supreme Court decision explaining the reasoning in a much better way than my previous summary. Reasoning is the same.
P38 The first issue is important because it governs whether the prohibition on possession is confined to representations of actual persons, or whether it extends to drawings from the imagination, cartoons, or computer generated composites. The available evidence suggests that explicit sexual materials can be harmful whether or not they depict actual children (...)
P43 (...)The question is this: would a reasonable observer perceive the person in the representation as being under 18 and engaged in explicit sexual activity?
P51 Family photos of naked children, viewed objectively, generally do not have as their “dominant characteristic” the depiction of a sexual organ or anal region “for a sexual purpose”. Placing a photo in an album of sexual photos and adding a sexual caption could change its meaning such that its dominant characteristic or purpose becomes unmistakably sexual in the view of a reasonable objective observer(...)
P38 The first issue is important because it governs whether the prohibition on possession is confined to representations of actual persons, or whether it extends to drawings from the imagination, cartoons, or computer generated composites. The available evidence suggests that explicit sexual materials can be harmful whether or not they depict actual children (...)
P43 (...)The question is this: would a reasonable observer perceive the person in the representation as being under 18 and engaged in explicit sexual activity?
P51 Family photos of naked children, viewed objectively, generally do not have as their “dominant characteristic” the depiction of a sexual organ or anal region “for a sexual purpose”. Placing a photo in an album of sexual photos and adding a sexual caption could change its meaning such that its dominant characteristic or purpose becomes unmistakably sexual in the view of a reasonable objective observer(...)
https://www.canlii.org/en/ca/scc/doc/2001/2001scc2/2001scc2....