Generosity is what makes acting more than the sum of its parts.
So what does this mean for roleplaying?
There are at least a few games out there that explore the dramatic side of roleplaying -- I'm specifically thinking of PRIMETIME ADVENTURES and Robin Laws's DRAMASYSTEM, although I'm sure there are others I'm not remembering. These games are generally good at explaining the essence of drama, which is (as David Mamet would have it) placing two characters who want something in a scene together, knowing that they both can't get what they want, and then watching what happens.
PTA models conflicts between characters (large and small) in an efficient way, and DRAMASYSTEM introduces the important idea that it's necessary for players to concede to each other for drama to proceed, rather than digging in their heels and refusing to give. While both of these games stake out territory that is the foundation of drama, neither really gets into the business of how to make drama at the table that functions at a higher level.
In essence, what we're talking about here is communication, so perhaps it's fair to say that these games assume Generosity is something that's a social contract issue, rather than something that should be prescribed by the game itself. That may be right.
It's so important for a group that's interested in playing a dramatic game to work on those basic skills -- not only developing their own ability to perform and play proactively at the table (driving their character's development and wrestling with conflicts) but listening to other players actively. This is essential not only for the well-being of the game as a whole, but for playing dramatic scenes with the other characters. If you know what someone's deal is and where they're going with their storyline, you're ready to not only interact with them but to be generous with your scenes, helping them build at the same time you're pursuing your own goals.
You're operating on several levels at once, like those high-functioning actors I talked about: you're performing your own character, building the overall structure of the game, and providing assistance to your fellow player at the same time.
What we're talking about here, in other words, is for each of the players at the table to take some of the authorial power and responsibility (the latter being the important thing, with regard to generosity) that the GM traditionally held at the table. Although a lot of modern games talk a good show about shared narrative control, the "sharing" part is often limited -- players get a say in how their problems shape up, or are encouraged to add glosses to the scene as it unfolds, or the rules themselves focus on player decisions shaping narrative. In other words, they often have more to do with the power part of the GM role, not the responsibility part; players can throw things in the mix to taste, but there is no requirement that they play well with others.