What are my options to use a 2012 iMac as an external display for a 2023 MacBook Pro?

Your best option is to forget using that old iMac as a monitor – to go out and get a real monitor for your MacBook.

If you downgraded your iMac to High Sierra (possibly by dual-booting off an external drive), and made a proper Thunderbolt connection to it, your iMac (21.5-inch, Late 2012) would support Target Display Mode. Unfortunately, Apple added restrictions on the video source. It now must be a Mac released in 2019 or earlier, running Catalina or earlier. Thus your 2023 MacBook Pro is too new to support using ANY iMac as a Target Display.

I would not advise downgrading your iMac to High Sierra, and rushing out to buy the proper cabling ($50 Apple TB 3-to-2 adapter + $30 Thunderbolt 1/2 cable), because it still wouldn't be enough to make things work. That 2023 MacBook Pro would still be "too new" to make a supported Target Display Mode connection.

You can confirm the bad news here: Use your iMac as a display with target display mode - Apple Support

There are two options, neither of which makes any economic sense for reusing a 21.5", 1920x1080 pixel screen, even if it turns out that they are compatible with your machines.

Neither provides the equivalent of a hardware connection to a real monitor.

• Luna Display (Astropad) – This requires purchase of a $79.99 USB-C gadget that you would plug directly into one of your MacBook Pro's USB-C (DisplayPort, Thunderbolt) ports. Connecting via a dock is not supported. I'm not sure if you could get away with a Wi-Fi connection for your 1920x1080 iMac display or not. They very definitely recommend running a separate cable for trying to reuse the display of a 27" 5K Retina iMac.
• Duet Display – This is a "subscription" program that costs $4 – $6 per month ($48 – $72 per year), which the vendor bills annually.

c_afshari wrote:

So there are literally no options to achieve this, even with cabling and adapters?

There are no video inputs for you to connect cabling and adapters.

<< What are my options to use a 2012 iMac as an external display for a 2023 MacBook Pro? >>

None whatsoever.

Drag over your TV set temporarily, then start saving for a real display.

Your iMac is also too old to act as an AirPlay Receiver for AirPlay to Mac.

Macs have been able to use AirPlay to connect to Apple TV boxes for a long time. So there's a good chance that if you set up your 2023 MacBook Pro as an AirPlay receiver, your iMac would be able to use the MBP's screen. But it won't work the other way around.

Continuity features and requirements on Apple devices - Apple Support

Set up your Mac to be an AirPlay Receiver - Apple Support

Further info re Luna Display: their own support site has this advisory:

To me that says Luna is good for a place to dock pallets and static windows but not good for a primary display.

For little more than the cost of either option, you can pick up a decent external monitor that will:

• be easier to set up
• offer more display options
• use less power than a running iMac

Apple started the deprecation of Target Display Mode 10 years ago and threw the last shovel of dirt in is fae in Early 2000.