Encyclopedia.com defines the novelette as "a short novel, typically one that is light and romantic or sentimental in character." "The College Handbook of Creative Writing" states that the standard novel contains a minimum of 50,000 words. The fact that a novelette is basically a short novel, albeit with far fewer words, means that it has all the elements of a full-size novel: plot, character development, setting and dialogue between the characters. It may focus on one central theme but can also focus on more than one.
"The College Handbook of Creative Writing" defines the short story as "[a] short narrative, usually under 10,000 words, that deals with a single dramatic event or central conflict that is developed and then resolved." Short stories also contain plot, characters, setting and dialogue. However, short stories focus on only one theme, the "single dramatic event or central conflict."
The length of the standard short story is under 10,000 words, so a work with a higher word count, but not as high as the 50,000 of the standard novel would be considered a novelette. If it has more than one dramatic event or central conflict, it would also be considered a novelette. Finally, a work that is insubstantial or not taken seriously falls under the category of novelette.
The terms "novelette" and "novella" are somewhat interchangeable. The defining characteristic of a novella is the fact that it is highly structured, like a full-length novel. Otherwise, in modern terms, it is a work longer than a short story but shorter than a novel.