Writers of historical fiction will offer all sorts of answers to that question. Reviewers will have even more. They will probably all be correct, from their point of view. One perspective is that all history is fiction. We only know of any event from what observers recorded, and historians resolved. A dictionary will say it is the genre of literature, film, etc. comprising narratives set in the past and characterized chiefly by an imaginative reconstruction of historical events and personages. This is true, too.
I love history and the interesting story in history is, to me, the occurrence of the unintended consequences that so often escape the textbook, or the filmmaker. One of the greatest examples of this is how the world changed after the catastrophic failure of Napoleon’s invasion of Russia in 1812. The only published record of this is from a member of Napoleon’s army, in the book Campaign in Russia by Eugene Labaume, published in 1814. The last line of this book says much. “These calamities have had one happy result, by putting an end to a despotic influence; they have restored Europe her liberty, and to France her happiness.”
My view is to look for the story behind or between the facts. I want to know everything that is known, and everything that is not known. Then a story might unfold that is enjoyable and enlightening. The facts can be dramatized and connected with creative action. The soul of the characters can be developed for depth, breadth and meaning.
The structure of The Lady with an Ostrich Feather Fan, my dramatic story of the famed Yusupov Rembrandts, is built on this formula.