Does the highlighted section imply "they added witty puns to these factors and used them as visual elements in their works"?
Context:
They shared wide interests in images from popular culture, the art of the self-taught and outsider art, comics, pattern art, graffiti and the ethnographic collections of Chicago museums. The Chicago Imagists’ works incorporated many of these influences into their visual vocabularies, while transcending them with witty puns.
Yes, that seems pretty much it. In your paraphrase you have lost some of the sense of "surpassing" that is present in "transcended".
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Yes, that seems pretty much it.
In your paraphrase you have lost some of the sense of "surpassing" that is present in "transcended".