From the front of the PTS:
The term “instructional knowledge” means the instructor applicant is capable of using the appropriate reference to provide the “application or correlative level of knowledge” of a subject matter topic, procedure, or maneuver. It also means that the flight instructor applicant’s discussions, explanations, and descriptions should follow the recommended teaching procedures and techniques explained in FAA-H-8083-9, Aviation Instructor’s Handbook.
If you haven't seen that statement, make sure you go through all the stuff in the front of the PTS.
Try to get into the mindset of the scenario that you are given. If it sounds like a full on ground briefing would be appropriate, don't be afraid to ask the examiner for some time to prepare and come up with a quick lesson plan, don't let them rush you. Other times it may be something more along the lines of simply answering a student's questions after a flight or perhaps a pre-flight briefing.
A full on lesson plan may not always be appropriate, but always try to keep in mind that paragraph that I posted above. Don't try to reinvent the wheel with anything, and don't be afraid to pull out your books and utilize the diagrams in there rather than draw your own on a whiteboard. When formulating a response, always try to keep the in mind the basic ideas of the Instructor's Handbook. For example, set up your answer with the building blocks of learning, find out what they already know and build on it without giving them information that they may not need at that particular stage of their training.