As much as writers of fiction want to be able to write whatever they want, they will find limitations. These aren't only limitations of mind but also of the audience. Audiences have a threshold for fantasy in fiction and an expectation of reality in non-fiction. The conventions and expectations of fiction and non-fiction are helpful to know when crafting a story.

This isn't to say these conventions are fair or that audiences shouldn't be able to rise above them and still accept things. This is an age-old problem and you need to decide whether you want to spend your time fighting these boundaries or creatively working within them.

Is Fake/Seems Real (Fiction Only)

This is the bulk of fiction. Made up circumstances, characters and situations that feel like they could be real. Non-fiction writers clearly can't touch this area though some have added elements of it to real life stories. These stories need not be rooted in reality or from events that have actually happened, they can be as far from reality as you like. The one thing they must do is SEEM to be real in relattion to cause and effect and human reactions to things.

Is Real/Seems Real (Both)

This is where non-fiction and fiction overlap. Historical fiction and exaggerated biographies take from the same source as an essay or magazine piece. It must have happened in real life but depending on how much artistic license the writer takes it will be deemed fiction or non-fiction. Depending on what your desire is for your story, you can either relate it exactly as it happened or introduce fictional elements you feel will add to the general feel of the piece.

Is Real/Seems Fake (Non-Fiction)

This is the only situation where non-fiction is the only type of writing that will work. These are the stories that would seem ridiculous if they were in a movie or a book. Too far-fetched even for the most out-there science fiction. They are too much a leap from accepted norms and if they weren't actually verified by multiple sources nobody would be interested to read it much less be able to accept it as part of reality. These are the type of stories that frustrate fiction writers. Often they will write about these types of things in their fiction and it will not be accepted by readers or critics. They will be told it's not convincing. The writer will cry that it really did happen, but the impression of reality is what matters to fiction readers.

Is Fake/Seems Fake (Absurdist Fiction)

This can easily become a tedious area of stories. For most people they need some type of connection to stories and don't take well to things that are completely foreign. If the story is set in another world and the characters that inhabit it don't act like humans, it can easily become a bore for most people. There is a sub-section of literature and drama that includes stories such as this but they are not very popular or widespread. The few that have had some notoriety is due mostly to novelty value and not story. Absurdist novels and plays can be interesting if you've never experienced one before. They are often great at getting laughs, but they don’t hit you like a traditional story would.

The one thing I would hope to communicate to fiction writers is that you need for your stories to feel real. If it doesn't, then you need to set it up so it feels real. The reason non-fiction can tell absurd stories that happen to be real and they are accepted is because of the context behind and around it. If you feel a certain an unconvincing part MUST be included in one of your stories then tell everything you can around it in the hopes that the characters and world will seem as close to real as the world the readers live in every day. When somebody doesn't believe what you wrote, it having happened in real life will not be a sufficient argument.