I think that stories are the best way for little children to learn about the world. Small kids haven't had time to go explore other countries or experience nature outside of their immediate surroundings, so stories are the only means by which they can branch out and discover things to which they don't have direct access. Stories can help put a kid to sleep or make him/her stop crying, so it's in the interest of parents to read stories to their children, too...
Stories are helpful to older people once they realize that it's impossible to do everything in the world. Try as we might, we can't be an astronaut and a firefighter and a doctor at the same time. We can fill the gaps and discover even more things if we read about them. Stories are also helpful as safeguards against the loss of imagination as people get older. If we read about worlds that are not our own, we can put our own world into perspective and avoid rigid thinking. Also, since we are unavoidably trapped in the present day and can't relive history, stories can help us "experience" past events for ourselves.
Stories are so important to our nation because, I think, people crave variety and like to escape reality every now and then. Many people who have unsatisfactory jobs (in cubicles, etc.) can use stories to discover interesting people and places that they otherwise couldn't. Short of quitting a job and actually exploring the world, reading stories presents the best alternative.
Part 3 Again--
The very first story I actually read was about a mouse who lived in a teapot. Her home was leaky and falling apart, and she became distressed, but eventually she found a nice glass bottle to live in. This story sticks with me because, by reading it, I felt I took a large step forward by doing something by myself. (I'm sure I could also engineer a metaphor here to connect myself to the story's protagonist, but I'm sure that wasn't my thinking at the time)
Part 4-- Good stories should:
1. Above all, be interesting to read. A story can be as insightful as it wants and still fail if people put it down out of boredom.
2. Create characters that people will care about. This is the only real reason people like books like Harry Potter--they can relate to the characters and are interested in their struggles.
3. Make characters interact in ways are unusual/interesting but still believable. Most stories won't just relate events that happen to people every day, but if they get too outlandish then readers will be annoyed.
4. Generally make things funny or ironic. This is one of the best ways to get a point across without being preachy.
5. Throw in pretty pictures if necessary. A lot of children's books would be nothing if not for the fancy illustrations.
6. Be unpredictable, since a completely formulaic story will give the reader nothing new. The rules need to be broken now and then.