Narrative (is not fiction)Narrative is a tricky thing to define, as it's usually so tied up with a game's fiction, but the difference is important.
Narrative: A game's plot or story. This includes the conflict, specific characters and their arcs, the backstory of the world, and the happy ending.Fiction is constant and universal, while narrative is evolving and specific: The fiction of a game may be obvious in a screenshot, but a narrative is a story and must be absorbed and experienced over time.
Examples of fiction versus narrativeThe fiction of Indiana Jones is always the same (pulp fiction, smartass adventurer battling mystical evil), but the narrative of each of the movies is different (new plot, usually including a new relic, new villain, and new love interest).
A game like KOTOR may have a branching narrative, but the fiction of the game remains the same for every player and over time, even through expansion packs or sequels that may change the narrative.
Games like tag or chess have a fiction (cops and robbers, warring armies), but don't have a narrative at all. Players may be able to tell a story about what happened to them while playing a game, but for my purposes that's covered under gameplay.
Things can get a little murky. Official IP names such as light sabers and the Force technically have histories in the Star Wars narrative, but the concept of laser swords and magic are really just fiction that someone doesn't need to have seen Star Wars to understand. You could slap any scifi IP on it and the fiction would still ring true.
Why the difference mattersFor the most part, it's ok to let narrative and fiction blend together a bit in your mind. In fact, all the best-designed games have mechanics, gameplay, fiction, and narrative that all seem to work together in perfect harmony.
The time when it's absolutely important to make the distinction is when you're entering production on your game. The game can start production while its narrative isn't quite fleshed out yet, and it's not the end of the world.
Trying to make a game when its fiction isn't yet nailed down, though, is a disaster waiting to happen. Because fiction often influences which game mechanics are chosen, trying to start the game while the fiction is wavering means you'll either end up throwing away a ton of work or just end up with a really inconsistent game.