Hi blindtea,
This is a question many applicants struggle with, because few of us feel we have real leadership experience, especially outside of the office. When you realize that this is a difficult question for many applicants to answer, and that business schools keep asking the question anyway, you may become less worried about answering it. Almost every applicant has to search around for a good response to this one, and they all need to get somewhat creative.
So think about your past and be inventive in the present. Have you ever participated in sports? Did you take responsibility? Are you involved in sports today, and could you become responsible for any aspect of your team or club?
Perhaps you're involved in some other club or organization. Perhaps you've mentored people or initiated some event or institute. Like mayonnai5e writes, it comes down to this: "you lead people and they follow."
If you haven't ever done anything that involved you initiating something or leading more than one person, then now is the time to start doing that. Join a club, church, or other organization. Think of something they are missing, such as sponsoring, a youth camp, after-school activities, collecting books / clothes / food for certain disadvantaged groups, etc. Initiate it, start a committee, delegate most of the tasks, and write an essay about it.
There's a recent post on my blog at
www.superduperstudent.com dealing with this kind of issue. If you want to become a successful MBA student, start acting like one today!
Good luck!