There are stories within stories within stories. We are all living within the interpretive story by which we believe ourselves to exist as distinct identities living in a particular 'reality'. It's all basically made-up. It's not that things aren't 'real', but that their realness is interpretive, which is to say, contingent, arbitrary. So what? Why should this disturb us? We might just as easily laugh and enjoy concocting a story, aware that it's a story, which gives us the greatest pleasure in being story-makers.
But nothing is that easy in the human experience. This is primarily because we insist on believing our own stories. Without them, our most precious belief, our identity, is exposed for the fabrication it is. We would become 'unfixed'.
Most all of these stories within stories are designed to support identity. We concoct stories in which we are special — especially happy, successful, correct, cool, sexy, gifted, spiritual, aware. We concoct stories in which we are losers—especially unlucky, victimized, misunderstood. If I am a story, the more I can believe that story the better. Unfortunately, more often than not, our stories also make us miserable, whether they have us as 'cool' (and 'cool' proves insufficient to ground us) or victimized. I say 'unfortunately' because I see happiness (or peace, if you prefer) as a legitimate value, given that that feels better than unhappiness. Yes, this too is a story, but if a story is required, why not make it a pleasant one?
Freedom happens when we are able to understand all our stories as stories, because then we are able to choose the story in which no story really matters.
You can check out Scott's writings on Zhuangzi here.