What is fiction and how did it develop?

Fiction is a form of imaginative literature written in prose. The term imaginative literature suggests a work of fiction does not purport to be an account of things that actually happened, although it may incorporate some individual historical events. Instead, many of the characters and events presented are ones created by the author. Fiction normally has some sort of narrative structure or arc and is about characters (usually human, sometimes not). Fiction is also normally written in prose rather than verse.
The earliest major works of fiction are the ancient Greek novels such as Longus' Daphnis and Chloe, which were translated into French and English during the Renaissance and influenced the development of the modern novel. Prose fiction dramatically increased in popularity during the late seventeenth and early eighteenth centuries along with the rapid rise of vernacular literacy and decreasing costs of paper and printing. The rise of serial publication in periodicals and circulating libraries gave impetus to the classic three-volume nineteenth century novel. That late nineteenth century novel and genres such as the "penny dreadful" marked the beginning of a mass market for fiction.