Dark: you are quite correct that hue interpolation is used in most cameras to turn monochrome sensor data into RGB. In addition, interpolation is one name for the process also referred to as up-sampling, down-sampling, up-rezzing, down-rezzing, etc.
Let's say I have a 2000x3000 pixel image from my camera and want to turn that into a 4000x6000 pixel image for printing. Think of a sheet of graph paper (a page divided into small squares). I colour square 1 (upper left) with the colour recorded by pixel 1 from the image. I then skip square 2 (just right of square 1) and colour square 3 with the colour recorded by pixel 2 from the image. And so on. When I'm done I have stretched the image to cover the new 4000x6000 area but have left holes all over. Interpolation is the formula used to guess the RGB values to colour the empty squares with based on the colour of their neighbours.
If this is unclear I can create an illustration later today.
Dale: How are you doing? A long time since I have spoken to you or seen your posts here. Your posts and explanations are as clear and informative as ever. Sharon and I are doing great and retired year around to LBI.