This is a convention that is used in oral storytelling traditions from all over the world, but especially common in the Middle East. It also shows up in some versions of flashbacks. Basically, storyline #1 is going along and a character in storyline #1 begins to tell a story (or have a dream, or read a book, etc.) Now we are in storyline #2, and the audience expects that at some point we will hop back into storyline #1. If a character in storyline #2 has a new story, that becomes storyline #3, etc. Comedic series will usually point out that this means that character #1 is telling a story that basically goes, "And then Character #2 told me that Character #3 told him that Character #4..."
The name Nested Story comes from Russian matryoshka, or "nesting" dolls; Take one doll apart, and there's another doll inside it, and another inside that, and so on and so on, just as this trope is one story inside another inside another inside another.
This trope is related to the Dream Within a Dream or Show Within a Show, but in practice it acts quite differently, because the "inner" stories claim all of the reader's attention, and there are often many levels of them, so it becomes hard to remember which one is the "outermost".
Most Nested Story plots try to end in the original storyline, the major exceptions being All Just a Dream and Nested Story Reveal plots, which usually leap to the outer storyline only at the end of the piece. There are, however, a few stories that never return to the outer plot, perhaps, but not always due to carelessness on the part of the author: Compare Shaggy Dog Story.
For the more general application of this trope where there's only one nested story and it's usually not as fascinating as the main story, see Story Within a Story.
A type of Recursive Reality. The "outer" story may be a Framing Device. See also Perspective Flip and The Rashomon. Compare ABC Plot Wheel and Soap Wheel. See also Two Lines, No Waiting and Four Lines, All Waiting. Can become a Kudzu Plot if many stories within stories are unresolved.
In line with the Oral Storytelling tradition side of the trope, the "World's End" arc of The Sandman features those caught in a reality storm telling stories, sometimes about people who told them a story about a person who told them a story... Occasionally, this gets to be five-deep in stories.
The film The Locket starts with a man about to get married being confronted by another man claiming that he used to be married to the same woman, and she ruined his life. His story then starts with the same situation, as does the next story resulting from it.
The Polish film The Saragossa Manuscript has at least five levels of stories-within-stories, and some characters appearing in multiple levels.
The main narrative of The Prestige involves Alfred Borden reading Robert Angier's journal—and in this journal, Angier describes his own readings from Borden's journal. Add flashbacks to the mix, and the timeline becomes as much a puzzle as Borden and Angier's stage magic.
D-War has flashbacks on three levels, although they are recalled in different ways (a man telling a story, a character in that flashback recovering memories from a past life, and a flashback for the audience, respectively).
The Arabian Nights. The whole thing is composed of Nested Stories, and some of the "stand-alone" stories are as many as seven levels deep.
Robert Irwin's The Arabian Nightmare is only one of a number of novels that take off on the Arabian Nights using the nested structure.
Frankenstein: At the deepest level: The family on whom the monster is spying is telling a story, within the monster's story to Dr. Frankenstein, who is in turn recounting the story to the captain of a ship in the Arctic, who is in turn telling someone else about it in a letter.
The dialogue "Little Harmonic Labyrinth" in Douglas Hofstadter's Gödel, Escher, Bach is one of these. It includes Lampshade Hanging and discussion of the whole concept of "push" and "pop" story. Helpfully, each level of reality is denoted by an indent in the text, but the indents are used for other things besides telling stories in stories- in one section, Achilles and the Tortoise find a magic lamp and meet a Genie. Attempting to get a wish for more wishes, the genie initially refuses saying that it can't grant "meta-wishes" (wishes about wishes) but eventually relents, but it has to ask the Meta-Genie to allow it to grant a meta-wish... and the Meta-Genie has to ask the Meta-Meta-Genie, and so on. Each genie's lines are indented one more than the previous one. Naturally, the outermost story (in which Achilles and the Tortoise get kidnapped and start reading a book while they wait for the villain) never does get resolved...
Wuthering Heights is narrated by Mr. Lockwood, who has the story narrated to him by Nelly Dean, who at one point tells him about the time Edgar was telling her...
House of Leaves, a man is editing and commenting on an essay about a documentary about a man's supernatural house.
Used in The Stinky Cheese Man and Other Fairly Stupid Tales: "Jack's Bean Problem". The Giant orders Jack to tell him a story, but says he'll eat Jack when the story's over anyway. Jack realizes his only hope is to stall, so he tells the story of how the Giant orders Jack to tell him a story, but says he'll eat Jack when the story's over anyway. Jack realizes his only hope is to stall, so he tells the story of howthe Giant orders Jack to tell him a story, but says he'll eat Jack when the story's over anyway. Jack realizes his only hope is to stall, so he tells the story of howthe Giant orders Jack to tell him a story, but says he'll eat Jack when the story's over anyway. Jack realizes his only hope is to stall, so he tells the story of how the Giant... In a later chapter, we find out that the Giant fell asleep listening to Jack's endless recursive loop, and Jack just snuck away.
From Stanislaw Lem's The Cyberiad: You can see the nature of "Tale of the Three Storytelling Machines of King Genius" just from the title.
The Blind Assassin features a story within a story within a story.
The Canterbury Tales, though it's pretty good about having only one Story Within a Story going on at a time, still has about 25 tales that get told one after the other, and sometimes extra tales in the middle of a prologue.
Kelly Link's "Lull" is a head-spinning example. It's a short story about six suburban men playing poker. They call a phone-sex operator and ask her to tell them a story. She tells a story about a cheerleader and The Devil fooling around in a closet. The devil asks the cheerleader to tell him a story. Which is a strange story seemingly about one of the men in the framing story and his wife. Beyond that, you have to read it yourself.
The Book of Lost Tales is about a mariner who sails to an island and meets the Elves, who tell him tales of their history, and sometimes the characters within those tales will themselves tell stories.
In Melmoth the Wanderer by Charles Robert Maturin, the narrative is made of this trope, exposing one story of the Wanderer within one other, after an other, as prelude to an other, etc.
In The Monk by Matthew Gregory Lewis, there are a few Gothic Tales peppering the main story, or making up part of some characters' backstories.
Jostein Gaarder's The Solitaire Mystery features several layers, with the main character reading in a book about a baker who learned from another baker who learned from another baker who had been to a remote island about a backstory related by another castaway on that island. The main character at one point starts to get them confused, but then recaps, for the sake of the viewer, when he figures it out.
Old Peter's Russian tales, by Arthur Ransome is about an old Russian peasant telling stories to his grandchildren while the huddle round the stove in the Russian winter.
In Peter Pays Tribute, the main character is writing a novel that features a bard who tells stories.
Several of the Sherlock Holmes stories, particularly A Study in Scarlet, and The Valley of Fear have Holmes' investigation of a crime mostly as an excuse to put a frame around the killer's why he done it story.
Mark Twain's semi-autobiographical work Roughing It features a man who keeps segueing from story to story without finishing any of them, going as deep as five or six levels at least.
Baltimore, or, The Steadfast Tin Soldier and the Vampire by Mike Mignola and Christopher Golden is an arguably very well done version of this, in that each individual story furthers the overarching plot. What prevents it from being a Rashomon or Perspective Flip is that each character is merely telling the piece of the story they know: there are also plenty of other side stories slipped in, and it almost ignores the overarching plot while the stories are being told.
The Dream Park novels have elements of this, as the fantasy story of each game-scenario is embedded within a mystery about industrial espionage, all in a sci-fi context.
David Mitchell's Cloud Atlas consists of six nested stories with chronologically ordered settings. The innermost story is of a 19th century sailor in the Pacific and the outermost is of a Hawaiian tribesman in a distant post-apocalyptic future.
Some of HP Lovecraft's stories can get four or five levels deep. For example: The Call of Cthulhu is ostensibly a document found by the reader, collated by Thurston, made of research done by his granduncle, which contains an account of a police officer, who recounts exposition detailed by a cultist.
Storytelling is a major theme in The Kingkiller Chronicle. Kvothe is dictating his autobiography, which contains quite a few stories.
The Manuscript Found In Saragossa. You have the Literary Agent Hypothesis at the top, telling the story of the protagonist, who spends most of his time listening to stories told by others, and these stories often include nested stories of their own—to the point that the characters sometimes complain how confusing all the nested stories have become.
Tosca Lee’s Demon: A Memoir moves between the main story—that of the narrator’s life—and the eponymous life story of a demon, which is being narrated to the protagonist.
In the Deon Meyer novel Trackers (known in Afrikaans as Spoor) we get three different plot threads of varying genres, partitioned into four sections, each a different genre. The first story is about a middle-aged Milla Strachan leaving her marriage and finding work as an analyst for a South African security agency investigating a possible terrorist attack during the 2010 Soccer World Cup. The second story is about an expert bodyguard named Lemmer who gets press-ganged into smuggling endangered rhinos across the border from Zimbabwe into South Africa. The final section involves private investigator Matt Joubert's search for a client's missing husband. Although the plots overlap at times the characters are seldom aware of each other and the connection only becomes clear in the last pages.
Happens a few times in How I Met Your Mother, due to its love of playing around with flashback sequences. The deepest nested story would be the episode "The Platinum Rule". To prove why Ted shouldn't date his doctor in 2008, Robin tells a story of dating a co-worker in 2007, and then within that story Marshall and Lily flash back to their awkward relationship with their neighbors in 2006, and within that flashback Barney tells the story of how he dated Wendy the waitress in 2005. Keeping in mind that the whole show is a flashback of Ted telling the story set in 2008 to his kids in 2030.
As mentioned above, Magic: The Gathering has a card that starts a game of Magic within the current one, named as a Shout Out to Arabian Nights. Of course, you could have four of these cards in your deck, resulting in games lasting roughly five times longer than normal. The card has since been banned at official tournaments.
Actually closer to around fourteen if no card recovery systems are used. However, chances are that it will last significantly shorter.
Eternal Darkness begins with Edward Roivas posthumously narrating the beginning of his granddaughter Alex's chapter in the Tome of Eternal Darkness. In her story, she reads (and experiences) the stories of other previous Tome bearers, including that of Edward himself.
The Assassin's Creed series is basically one long string of these, as present-day protagonist Desmond Miles is experiencing the memories and histories of his ancestors Altair, Ezio Auditore and Connor Kenway. Revelations takes this Up to Eleven when Desmond-as-Ezio finds the Masyaf Keys, which allow Ezio to see Altair's memories as well.
This is possible in Jake Hunter Detective Story: Memories of the Past if you opt to play the final case first, as Ken Krause collects and reads Jake's previous case files, which are then played through. "As Time Goes By" also has Jake and Yulia recounting a case from a year ago to Detective Kingsley.
In Opplopolis a race of aliens are briefly introduced as a fantasy of Marvin's. Later, the same aliens suddenly return and discuss the characters and events of the comic, making it ambiguous whether the Opplopolis story is nesting the aliens or vice versa.
The webcomic Grim Tales From Down Below has this, using a series of flashbacks within flashbacks. Starting with Jr. relating to Spawn how he got to be the Reaper, 3 days ago in Halloween, where he met a group of kids and told them the story of how his father Grim married his mother Mandy, during which Grim told the story of a particularly nasty event that happened during Billy and Mandy's childhood.
Defied in a strip in DMFA. Dan stops Aliyka from telling a story in order to prevent one of these.
Captain SNES: The Game Masta has quite a few of these, being that the entire story is being told in flashback form. This trope gets invoked whenever anybody in-story has a flashback, and at least once somebody in a flashback gets a flashback, and so on.
Happens in Queen of Wands: As Kestrel is telling Angela how she met Shannon, she segues mid-flashback into an earlier story of her affair with Felix. Somewhat justified in that Felix and Shannon are now married and Angela was asking how Kestrel came to live with them. Subverted towards the end of the comic when Angela shares a story from her own past with Kestrel: it's over in a page and a half.
Kestrel: ''But... that's it? I mean... where's the point in that? Angela: Geez, Kestrel - not everything has to be an epic story. Sometimes, shit just happens.
Sunstone: The outermost story focuses on Lisa writing her book detailing the events of her relationship with Ally, the main meat of the story takes place some years prior and shows us these events in which characters often elaborate on their backstory through another level of flash backs.
The Simpsons episode "The Seemingly Never-Ending Story" begins with the Simpsons exploring a cave, during which Lisa tells a story about Mr. Burns and a goat, during which Mr. Burns tells a story about himself, Rich Texan and Moe, during which he read a letter telling a story about Moe, Snake, and Mrs. Krabappel, during which Mrs. Krabappel tells a story about herself and Bart. This segues back into the previous story, which segues back into the, which segued into the previous one, which faded into the higher story, which then led to the goat's story. This faded back into the previous story, which segued back into the cave story, which led to Homer telling a story about buried treasure. This story ends, leaving them back in the cave, and the plot is resolved — and the story then fades into Bart claiming that this sequence of events is why he didn't do his homework.
The Ed Edd N Eddy episode "Every Which Way But Ed" involves Eddy telling his fellow Eds a story, but Johnny starts telling a story in which Nazz starts telling a story, and eventually the Eds get hopelessly lost in all the flashbacks.
Adventure Time: In one episode, Finn goes inside Marceline's memories and is tricked into helping destroy her memory of an important event. To fix this, Finn brings Marceline inside his memories, and shows her his memory of seeing her memory.