I believe that fiction in language arts would most likely be something that is totally unrealistic and made up, using your example, dragons, I hope this helped.
So fiction is made up, but it is based off of real events to help give people a sense of what you're talking about. So it is made up, but to an extent.
Despite the fact that world literature stories usually come from other countries and cultures, there is always some meaning that we can take from their intended messages.
