''The Art of Fiction'' is essential, thoroughly entertaining reading for writers, students and anyone who wants to understand how literature works. The articles by David Lodge, which first appeared in the ''Independent on Sunday'', are expanded here and consider the subject under a wide range of headings such as 'The Intrusive Author', 'Suspense' and 'Magic Realism'. Styles and techniques are illustrated in each case by passages from classic or modern fiction. Drawing on writers as diverse as Henry James and Martin Amis, Jane Austen and Fay Weldon and Henry Fielding and James Joyce, Lodge also demonstrates the richness and variety of British and American fiction.