Fiction is what most people mean when they use the term literature. Technically, all literature could be considered fiction as it means something that is not factual. However, fiction generally means novels and short stories -- these are usually texts that tell a story with a recognizable beginning, middle and end. These are generally written in prose, which, at its most basic, according to the "Penguin Dictionary of Literary Terms and Literary Theory," means "a direct, unadorned form of language, written or spoken, in ordinary usage." Much fiction, however, uses poetic elements, while some poetry is written in prose-like language.
Although most poetry, also called verse, is easily distinguished from fiction or drama by its shorter length and use of rhyme and meter, there are poems that use prose and even poems that are book length. These are often epics, long narrative poems that tell of the heroic deeds of an exciting main character, such as in "Beowulf" or "The Odyssey." Poetry is often hard to define, but it can almost always be recognized by its use of intense imagery and figurative language, such as metaphors and similes. Poetic language is very different from prose -- it is not the type of language we use in everyday speech.
Drama, or plays, are texts that tell a story through performance rather than the narrative style used in novels. Dramatic works can be in either prose, like most modern plays, or in poetry, as are most of Shakespeare's works. Dramatic texts are usually meant to be performed by different actors, who act out the parts to bring the story to life. There are some dramatic texts, however, that were only meant to be read, such as John Milton's "Samson Agonistes" or Lord Byron's "Manfred." These are called closet dramas.
Poetry is the oldest known form of literature. For example, much of the Bible is written in verse. The oldest known poem in English is most likely "The Dream of the Rood" from either the 7th Century or 8th Century. Drama was the next literary development and many of the oldest plays are merely poems that were performed. Novels and short stories are the latest addition to the literary scene. Many scholars credit Aphra Benn with writing the first novel, entitled "Oronooko," in the 18th Century. The short story as a specific art form developed later, in the 19th Century, and many scholars believe Edgar Allen Poe perfected the genre.