At the most basic level, story transforms its subject from an initial state to a changed state. Think of this as your beginning and your end. Once upon a time...happily ever after. But what happens in the middle?
The journey moves from conflict through development to resolution.
These three sections—conflict, development and resolution—match exactly the three-act structure from cinema, theatre and literature.
This structure has evolved from Aristotle’s poetics, past Shakespeare’s plays, through modernist literature, right up to mainstream Hollywood hits like Hot Tub Time Machine and Ernest Goes to Camp.
This structure comes in a ton of variations: 1-5 act versions and every conceivable experimental form possible, but the standard form resolves to three-acts reduced to something like this:
Act I: We establish the problem, set the stakes, and find out the trouble has become even worse than we thought.
Act II: Then we see initial steps or progress, endure a set-back, and then rise to the second challenge.
Act III: We revisit the initial problem at its core, find a solution, and then witness the subject transformed by the experience.
Whether the subject wins or loses determines the difference between comedy and tragedy. A lot of the time the story ends mixed (a little of both), but, in nearly every story that uses this structure the subject emerges transformed.