Narration is simply the telling of a story verbally, as opposed to through normal acting. It is a common dramatic technique, and can be used to tell the audience things that are not obvious from the acting alone. It is particularly common in fairy tales, as it helps to preserve the feeling of being told the story by a single person, as they traditionally were. It can let an audience know of events that have taken place since the last scene, tell them the hidden feelings of the characters, or, in the case of very young audiences, explain what is going on in the play.
It can also be used to give the story a very personal, intimate feel. Sometimes a central character will be telling the story, which usually makes the audience sympathise with him/her a great deal, as it gives them a bias view of events. This character may be telling the story as it unfolds (using the present tense) but will often be looking at the events in hindsight (speaking in past tense).