If you are going to write fiction, you first need to have a strong understanding of written language. You need to understand the usage of punctuation marks, keep verb tenses consistent and have a wide vocabulary. In short, you need to be able to write coherent and interesting sentences and paragraphs.
Plot is the first thing to think about when writing fiction. Even if a story is character-driven, the character has to do something. Whatever this something happens to be is your plot. Ideally, all the elements of your plot should lead to the climax of your story. The traditional plot form of beginning, middle and end is often a blueprint for plot development. In the beginning, you give the reader the back story and introduce your main characters (this is called exposition). In the middle, the majority of your rising action occurs--this constitutes the longest section of the three traditional plot sections. The end of the story includes the climax and the resolution. Although there are other ways to set up plot, this is by far the most common.
Character is as important as plot. The main thing to remember when creating characters is that they must be interesting. A character should not be perfect, since perfect characters are rarely interesting; instead, they should have flaws and defects. Even evil characters can be sympathetic if they have easily recognizable traits. The ability to create strong characters is one of the most important tools a writer can have.
Setting works with plot and character in the creation of fictional stories. Plots depend greatly on the time and place in which they occur. The surroundings will also influence characters. In fiction, settings are virtually limitless. You can have your story take place in ancient Rome, on the moon, in modern-day New York City or in a fantasy locale like Middle-Earth--literally, wherever you want. A good setting uses a lot of specific details to make it realistic, even if that setting is a made-up place.
Figurative language, which looks beyond the literal meanings of words, makes fiction jump off the page and is one of the most effective tools a fiction writer can employ. Two of the most-used forms of figurative language are simile and metaphor. Simile is the comparison of one thing to another, using the terms "like" or "as." Metaphor is the comparison of two things without using "like" or "as"--literally comparing one thing to another. ("Life is a beach.") Other types of figurative language include personification (giving nonhuman things human traits), idioms (an expression that means something different than the literal meaning of the words used (kick the bucket) and hyperbole (obvious exaggeration).
In foreshadowing, a writer hints at what is to come later in the story. Sometimes this is done literally--for example, the Weird Sisters' prophecy in the beginning of "Macbeth"--but most of the time, foreshadowing is subtle. Anything from a dream to a reoccurring scene (for example, a character sees numerous car crashes throughout a story, and then is paralyzed in a car accident) can be types of foreshadowing. If not too obvious, too obscure or too prevalent, foreshadowing can be an extremely effective tool.
Remember that fiction has underlying themes; it is about something, usually more than just the plot or the characters. Themes are reoccurring ideas that appear throughout a work of fiction. Popular themes include love, death and morality, but there are an infinite number of themes a writer can use in fiction.
A story can be drastically different depending on the point of view from which a writer tells it. The three points of view are first person (a story told from the view of one of the characters--"I" as the main character), second person (addressing the reader directly as the main character--"you" as the main character) and third person (story told by a narrative voice that follows a character, or multiple characters, but is not actually a character in the story--he/she as the main character). The ability to decide which point of view best suits a story is an extremely important tool for any fiction writer.