Of all the scraps of wisdom that I've ever come across in my life that ever perplexed me the most, "all stories are true" ranks up there with "do what thou wilt" in terms of puzzlement. Both seem ridiculous at first glance, but they yield slowly to analysis. I've seen "all stories are true" attributed to Alan Moore—by Dave Sim, though—and at the time I first came across this bromide, it was merely opaque to me. I wanted to honor truth, I hated lies, and everyone knew that lies were everywhere, so how were all stories true?
Decades later though I can see that "true" is a very large word indeed and difficult to assess. Is any fiction "true"? Arguably it must be, or it won't be convincing as fiction. A work of fiction that intersected in no way with recognizable human truth wouldn't be regarded as fiction; it'd be regarded as opaque and alien. That intersection of fiction with human reality is roughly what we call "plausibility", and it pervades all fictions and lies. Lies are only believable because they're plausible, even if the plausibility is slight.
It doesn't end there. The person telling the story or the lie must want to believe it, as well. In my experience it's not possible for a human being to tell a lie they don't believe themselves at least a bit. Try to make yourself say something that you don't place any credence in, and you practically have to trick yourself, forcing the words out. It's like your very body doesn't want to participate in the deception. Hence to the liar or storyteller, there's another region of intersection between the story and human truth, and it's probably not the same as the region of "plausibility" that keeps the listener engaged to the tale. The tale-teller wants certain things to be true that aren't in the listener's zone of plausibility. The implication? There's a larger sense of truth, bigger than what either individual believes in.
~Chara of Pnictogen