A figurative treatment of one subject under the guise of another, especially a symbolic narrative or a presentation of an abstract or spiritual meaning under concrete or material forms. In other words, it's a story where something in the story symbolizes something out in the real world. This is more than saying, "Whoa, man, a skull is, like, symbolic of death, ya know? Totally heavy..." Simple symbolism is not the same thing as allegory. An allegory should be story/book/film-length or longer and should maintain the symbolism from beginning to end; in fact, an allegory's symbolism must be as important as the plot itself.

Some notable allegories include Plato's "Allegory of the Cave," Dante's "Divine Comedy," Clemence Housman's story "The Werewolf" (a personal favorite of mine), and most of the Bible.