We probably hold the world record in storytelling out here in Puttachiland, and so here are some observations I've made to get you started on telling stories to your child.
* Very young children, around two years old, don't need an imaginative storyline. Just narrating an everyday incident like a story is enough to keep them wide-eyed.
* As they get slightly older, about 2.5 to 3, you might need to insert a problem and it's solution. This age is wonderful to introduce life lessons - what happened when Lata lied, what was the result when Ajay did not brush his teeth everday - but be sure not to make it preachy - kids can spot it a mile away. Last year, my aunt asked me if I ever told any stories to Puttachi that did not have a moral :)
* After the child turns three, depending on how interested your child is in stories, and how long s/he can sit and listen, you can introduce long stories. Make some up as you go along (you will have enough experience by now :)) or fall back on mythology, folk tales, fairy tales and animal stories. If you don't know many stories, it is worth buying books of stories. It is nice to read to the children too, but actually narrating the same story gets them more interested. Don't be shy about emoting when narrating - you will never get such a rapt audience in any other situation :D
* When choosing stories from Panchatantra and Jataka and Hitopadesha, watch out - most of the stories are pretty cruel and violent, and often end with the victory of evil! You could tell them to a slightly older child (3.5 - 4) softening the edges a bit, but fairy tales and folktales with the victory of good over evil is much more enjoyable!
* When there is a long story, like the Ramayana, first start by narrating the bare bones story to a very young child. As the child grows, depending on how receptive s/he is, you can add details. Especially when there are too many names to remember, it helps by making the child familiar with the main characters before adding the others.
For example, I've been telling the story of Ramayana to Puttachi for about two years now. Initially, it got over in five minutes - now it goes on for more than 4-5 hours - spread over mealtimes of 3 days :)
For example: First I said, Dasharatha asked Rama to go away to the forest
A few months later, after introducting the three wives, I said, Kaikeyi asked Rama to go to the forest.
Some more months later - Kaikeyi's maid Manthara poisoned Kaikeyi's mind to make her ask Rama to go to the forest
LAtely - I have also introduced the sub-story where Kaikeyi gets the two boons which she makes use of to get Rama to go to the forest.
Now, our Ramayana has reached such detailing that I've also started telling her the sub-stories of Ahalya and Shabari and so on - and she can now understand it all with no confusion.
In fact, now, she is coming up with questions of her own.
Did Lakshmana also try to lift the bow? If he had, do you think he would have been able to lift it? Then he would have married Sita, no?
Why didn't Lakshmana's wife Urmila also go to the forest? Wasn't she bored? She should also have gone.
Now I know that she is ready for more detailing - but I've reached the end of my own Ramayana knowledge - I've to refer to a good book on Ramayana :D
* There is no storytime as such - any time is storytime. Somehow in our house, mealtimes have become storytimes. And sometimes, Puttachi overeats while listening to the story, and so I've to be careful. When I think she's had enough, I say, if your tummy is full, you should stop. I'll complete the story anyway. But I would like her to concentrate on the food completely and enjoy it, instead of hanging on to stories... so let's see.
* Study and research has shown that kids who are told stories regularly have better vocabulary and imagination - but don't make this a reason for telling stories to children. The joy that arises out of it makes it all worth it - everything else is just a bonus.