Russ had a good post about truth which was insightful and (unsurprisingly) confusing as hell. I reproduce here some of my thoughts (which I originally posted in a comment):
I think there's an important distinction between truth and fact. All the time we take events from real life and use them to seed a story. One measure of how successful we are is indeed whether we've captured the truth of the original but this is different from simply recapitulating the facts of the matter.
I believe truth straddles the line between what we think and what we feel. True (haha, no pun intended) art happens when the artist finds a way to communicate the truth of his subject to the audience.
A friend and mentor of mine uses the following example, which I always found simple, yet very apt: Let's say you see a beautiful sunset and your immediate reaction is "Wow." Now you decide to write a story about this sunset. The last thing you want to do is say to the reader, "I saw this sunset and said, 'Wow.'" You simply want to show him the sunset.