An allegory is literary device or technique when one character or place represents a part of ourselves (As in The Three Little Pigs where the "brick pig" = reality principle, the "straw pig" = pleasure principle) or an actual person (Rashid the father and storyteller represents the author, Salman Rushdie) or a place (Valley of K in Haroun represents Kashmir, a politically restive territory north of India).
Authors who are muzzled or silenced for political reasons will continue to speak their minds, but through disguised characters. Consider, for example, Aesop's "The Wolf and the Lamb" and its message about tyrants.
The Wolf and the Lamb by Aesop, translated by G.F. Townsend (source)
WOLF, meeting with a Lamb astray from the fold, resolved not to lay violent hands on him, but to find some plea to justify to the Lamb the Wolf's right to eat him. He thus addressed him: "Sirrah, last year you grossly insulted me." "Indeed," bleated the Lamb in a mournful tone of voice, "I was not then born." Then said the Wolf, "You feed in my pasture." "No, good sir," replied the Lamb, "I have not yet tasted grass." Again said the Wolf, "You drink of my well." "No," exclaimed the Lamb, "I never yet drank water, for as yet my mother's milk is both food and drink to me." Upon which the Wolf seized him and ate him up, saying, "Well! I won't remain supperless, even though you refute every one of my imputations."
Moral: The tyrant will always find a pretext for his tyranny.
Aesop was threatened by tyrannical Greek kings and chose the literary device of allegory to cleverly express his opinions. In this cartoon alluding to Aesop's fable, the cartoonist presents the imperial colonial power France as the wolf threatening Siam (Thailand), presented as the lamb. To enlarge their territory, France manufactured border disputes and created naval quarrels to provoke a crisis. It was an excuse or a pretext, not the real context (what they actually wanted). Wikipedia has an article about French Indo-China, especially the Franco-Siamese War of 1893.
With an allegory, you can read the text as just a story, playful and entertaining, which Haroun and the Sea of Stories certainly is, but you can also read it on a political level or a psychological level. These are the levels of reading that an allegory allows.
Haroun and Rashid's names...
Allegorical interpretations of the novel...