The simplest and most straightforward difference between fiction and nonfiction materials is their basis in reality. Fiction has no claim to reality and can readily flaunt that it is not a piece of factual material while nonfiction must be based and drawn directly from real events. The approach of the writer then determines how the book or story is read. People don't read Anne Frank's diary the same way they read "The Catcher in the Rye." Both are important works that have much to say about our world, but they do it through different approaches initially decided by the authors.
Secondary to the approach is the presentation of the piece. If a book says "fiction" on its cover, then a reader would generally expect something different than if it said "nonfiction." In large part, marketing and advertising play a role in how texts are read. The recent flap over James Frey's "A Million Little Pieces," which initially was sold as a memoir then later recanted as a fictional work, belies the perceived importance of presentation to the public. People want to know clearly at the outset what they are reading.
The style of fiction and nonfiction differs greatly and usually contributes to the reader's conception of a piece. Although new styles such as creative nonfiction have further blurred the lines between the two, fiction is often more stylistic and form-based than nonfiction. Great fiction is revered as much for the way it is written as what it is about while respected nonfiction often gains popularity because of who or what it is about (or who wrote it). To compare the differences in the two styles, try reading the Ernest Hemingway novel "For Whom the Bell Tolls" and newspaper clippings about World War II from the same era.
Ultimately, the way a reader and the public at large perceive a piece of writing determines how the book is received. Nonfiction can be any number of varying styles, and, according to the Hoover Public Library, "is the broadest category of literature." From magazines to memoirs to newspapers and blog posts, all share the commonality that there is a perceived level of veracity to the writing. Novels and short stories can be based in reality and even comment or directly influence reality, but at the end of the day, we know they are the creations of a writer. The most famed book in western history, the Bible, is thought by many to be the factual word of God even though many of the stories inside appear to be parables or at least drawn from other sources. The lasting popularity and public devotion to the Bible highlights how public reception influences a work's perceived basis in reality or fiction.