I asked a man the other day if he had read any good fiction. He told me that he couldn't stand to read anything that wasn't true. A bit surprised at his answer, I responded that while fiction is not "true" in the sense of presenting facts, it is true in a different sense because it truly gives an account of human experience. What I was trying to express was that, while it uses imaginary setting and characters, fiction describes what people really experience-not only life events but the inner world of man: emotions, thoughts, impressions.
Through fiction, we learn about ourselves. While the characters are derived from eh psyche of the author, we can learn from writers who made the effort of going inward and describing what they found. "Good literature is an education in self-understanding" (Aldous Huxley, "Literature and Modern Life")
Through stories, we broaden our perspective and learn about other cultures, time periods, and types of people. Case in point: while I obviously can never know what it's like to be a mother, I can-as much as it is possible-enter into that mindset through a well-developed character. I'm thinking specifically of Jodi Picoult's The Pact: she presents in depth the thoughts and reactions of a mother whose son is convicted of a very serious crime and sent to trial. My interior landscape has been enriched and enlarged by this ability to peek into different viewpoints via the experiences of fictional characters.
Stories can also be used to teach or to present a worldview. We are taught life lessons and forced to consider ethical issues-from the simple morals of Aesop's Fables to the prophetic warnings of 1984 and Brave New World to the complex moral question raised by such great writers as Tolstoy and Steinbeck. In ancient times, stories were used to express the beliefs of a people. Myths and allegories were the primary medium used when attempting to explain the world and suggest how we should live in it. In modern times, thinkers have used fiction to expound their philosophies. Conspicuous examples are the existential novels of Jean-Paul Sartre and Albert Camus. The ways in which fiction can be utilized to instruct or to express ideas are endless.
There is a time for Non-Fiction (History, Journalism, Essay, etc.), but the "truth" is limiting. Coming from a different angle and using its own (wider) set of rules, fiction is just as true, if not more so, than "the facts"