Legal fiction refers to a fact assumed or created by courts that is not necessarily true but is treated as true for legal purposes. This concept allows the law to function effectively by enabling judges to apply legal principles to situations that may not fit neatly within existing statutes or precedents. For example, the legal fiction of a corporation being treated as a 'person' allows it to enter contracts, sue, and be sued. This abstraction helps facilitate business operations and legal accountability, illustrating how legal fictions can bridge gaps in the law and adapt to societal needs.