That's the subject of Lit Trad IV here at UD. For the final, we're being asked to consider (among other things) the question of what FPN is and why it matters. Here's a small and poorly edited portion of my initial thoughts on the matter.
So, Fictional Prose Narrative is a manner of imaginatively engaging reality that examines particular actions of characters as they respond to certain situations and environments. Imaginative engagement with reality in this context indicates that quality proper to the single, unified action of the narrative, that is, of the plot, in fiction is that of being not real (in the sense of being non-actual, non-historical), but rather of being realistic, or probable. Whatever the details of this form of literature—however its episodes are arranged to form a coherent plot, whoever the agents of this action may be, whatever the thought behind the action, and whether a first or third person narration technique presents it—in its essence, fictional prose narrative aims at the pleasure of understanding human action, not in specific historical circumstances, but in terms of suppositions and possibilities that are nonetheless grounded in the ultimate realities of human existence.
To claim for this genre the quality of being “not real but realistic” may seem at first an oxymoron. How can something participate in certain attributes of realism without being actually real itself? It is useful here to draw a distinction between different understandings of “reality,” and this returns us to the distinction between history and fiction implied above. Fiction is not “real” in its particulars. That is, it does not recount a factual account of what actually happened to real people in real time during one era or another of this familiar world. Rather, its realism is found in its accordance with general laws or patterns of the ways that individual humans tend to interact with one another or with their world. To put it in terms of authorial method, one can see every work of fiction as the product of an author's sorting-through of his or her own experience and observation of real human action, and the application of these observations to imaginary circumstances and characters. In more philosophical language, then, what occurs in the creation of fiction to give it its peculiar character of real unreality is the abstraction of universal principals from particulars and reapplication of these universals to new, imaginary, and humanly-created particulars.
That being the case, what is the use of such a manner of imaginatively engaging reality? Certainly, it has very little “utility” in terms of profit and production. Its importance lies, rather, in the Aristotelian notion of catharsis, a concept that can be at least partly explained in terms of the purpose of fiction. The purging of strong emotions described by the term is achieved through the vicarious experience of sorrow, laughter, or joy accessible in literature. The result of an encounter with archetypally familiar situations and characters, engaged in human action that is akin to the human action of one's own experience, can often be an invitation to break out of the paralyzing self-awareness that too often accompanies isolated experience. To vicariously undergo the emotions associated with joy and suffering through intellectual engagement with the actions of characters who are not identical with the reader, but who the reader can identify with is to realize the non-exclusivity of such experience. It is to lose something of the painful preoccupation with the self that results in large part from a sense of the uniqueness of this experience. Most importantly, to read good fiction is to learn what this experience may mean, in the view of not just any currently fashionable author, but of the “wise of all the ages,” whose interpretation of the meaning of human life as revealed in the imaginative worlds of their applications of general principals to individual situations the reader can absorb and make his own, agreeing with them, modifying them, or rejecting them, but always learning something about how to make sense of his own experience in their light.