We tell ourselves stories about our own actions, choices and beliefs (internally). We desperately want to believe that our own behavior is consistent and coherent. Fitting our behavior into a narrative helps us maintain this illusion ("I did Y thing because X thing happened to me, and then Z thing happened because I did Y").

We tend to assume that cause-and-effect relationships are true and real, that we perceive causes and effects correctly, that we associate causes with effects accurately, and that we perceive all causes and effects that are relevant. These assumptions give us a narrative structure through which we make sense of our own behavior... though they are about as reliable as any of our other assumptions.

Anyway, the upshot is that framing the actions, choices and beliefs of others into a story helps us to understand and empathize with them (or condemn and villify them). The stories are a construct formed mostly from confirmation bias, but we struggle to make sense of reality without them.