Question: Let's say you are navigating a list, grid or dropdown with the keyboard arrows. Pressing the arrows changes the temporarily "selected" item, and pressing enter **selects** it (a bit like the element on a webpage). Since the action of selecting the item is confirming your choice, navigating the list can't also be called "selecting".

What is the terminology for navigating and changing the state of the temporarily "selected" item without changing or saving the value? I'm struggling to find a concise term to explain the action of navigating the list. "Navigate with the arrow keys" doesn't seem like the right word and doesn't seem to be very well understood, and "Change the temporarily selected item with the arrow key" is way too long.

Answer: 
When the user navigates to an item on the dropdown list, that item is 'active' or 'in focus.'

Personally, I prefer 'in focus' when talking about tabbing through an interface or using the arrow keys, because it most accurately describes the visual feedback in the UI.

Microsoft calls this 'input focus' in their UI glossary: <https://msdn.microsoft.com/en-us/library/windows/desktop/bb226821(v=vs.85).aspx>
The technical term is *focus* ("you can move focus with the arrow keys") or *active* ("you can change the active item with the arrow keys").

However, I note that in your question, you seem to be seeking input on what *user-facing text* would be helpful to explain to a user that they can move in the list with arrow keys.

In the case of user-facing text, I don't think either *focus* or *active* are adequate, as they only have that specific meaning in a programming context. I'd use something like: "you can move through the list with arrow keys" or maybe even simpler "Try arrow keys to move through list items". (Or, frankly, I probablywouldn't use any text at all, and this way people who are already familiar with arrow keys will use them, and others who likely aren't about to try it for the first time ever won't have to read about it, but that's not the question here.)