THE USE OF STORIES IS A POWERFUL TOOL that aids in material retention, but methodologies of inclusion are rarely discussed. The desire to share emotions and effect the emotional states of others drives us to tell and retell stories. A story is a vector that spreads the information and emotion that is contained within it. No classroom or teacher is needed past the initial storytelling. We have been doing this for years in the form of childrens stories. It has been widely speculated that the story of Hantzel and Gretel is a cautionary tale used by elders to prevent children from wandering off into the dangers of the European forests alone.
Much of our human communication efforts seems to be tied to sharing emotional states. The way we primarily do this is by conveying the emotion in the context in which it was felt – a story. Emotional elevation somehow enhances memory. Stories conjure emotions and effect our emotional state. Enhancing the dramatic effect of our instruction and specifically our educational stories will effect our emotions and will aid in retention. The following quote I think makes the point quite elegantly:

 The California Department of Motor Vehicles Handbook a few years back stated that a key indicator of a safe drive is that there are no significant memories of the driving time in the vehicle. This is because an incident (near accident, reckless driving, speeding) while driving will typically activate our memory and record events in detail. 
“Emotion is an unconscious arousal system that alerts us to potential dangers and opportunities. Think of emotion as a biological thermostat that monitors and reports variations from normality. Emotional arousal activates our attention system, which identifies the dynamics of the challenge and then activates relevant problem-solving systems that consciously respond to the challenge. Everything we do thus begins with emotion, a key cognitive process that was poorly understood for most of human history.” (Sylwester, 2003)
Simply elevating emotion activates memory. An event which elevates the emotion enhances memory. A person will immediately begin to mentally record detailed observations of his or her surroundings and the presence of mundane objects seemingly unrelated to the emotion causing incident itself. Further, these memories seem to go straight to long term memory. In the following example, a woman was immediately able to recall what she was doing on the day President Kennedy was assassinated over 40 years ago: 

It was a rainy day in November…actually it was more overcast and drizzly. Really dreary. The news came on towards noon and we went into the living room of the house in Bellflower. My dad was in El Centro that day, but mom was home. Mom and I were glued to the television which was large but had this little black and white screen. They were showing limited numbers of still pictures on the little screen – but no video. There was a picture of Jackie with her suit covered in blood and the mayor slumped over. We were crying and I didn’t go to nursing school that day. Robin was back east in seminary and we ran up a $75 dollar phone bill discussing the assassination which was most of my pay check...”

One goal of the educational story then is to take advantage of as many senses that can elevate the emotional response. A story can range from verbal or written parable, then aided by pictures, sounds, video, even the rare olfactory inclusion. Also, the more the story is happening to the user also increases seems to increase memory retention. This is especially evident in simulations where the user is part of story itself. The goal in the use of media is to intensify the drama (emotion) of the story. 

Including stories during instruction requires a cost in effort (collecting the story, the multimedia that goes with it and then the production needed for its use) and time (the time it takes to tell the story during a class) that must be managed within a given module of instruction. Therefore, stories should primarily be used for key instructional points that the instructor deems important enough to spend the this time and effort. Start with a key point first and then locate a story that best illustrates the point. One story may be relevant to one or more key points. The key point is essentially the "moral" of the story. The story can be a fictional or non-fictional.

At some point, clearly state the information you are are trying to reinforce. State it at the beginning and the end of the story. 
Enhance the dramatic effect 
After you locate or create the story that supports your key point, enhance the drama of the story. The more dramatic the story is - the more the emotional state is raised, aiding in retention and increasing the probability that the story will be retold outside the classroom. Choose dramatic photos, build characters, choose dramatic music and use the full range of the the story telling art. 

Todd Paulsen
Paulsen, T. (2005). Emotion, memory, and stories. In B. Hoffman (Ed.), Encyclopedia of Educational Technology.