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According to Aristotle's classic Poetics, tragedy is a genre that depicts a noble character—you know, someone all high and mighty—who more or less falls from grace. The genre is meant to create the emotions of pity and fear in its audience, hence purging those emotions in an act of catharsis.
Usually, that fall from grace is brought about by some sort of tragic flaw (a.k.a. hamartia) on the part of the hero, like ambition, greed, or pride. But it can also just come from bad circumstances, unfortunate coincidences, and rotten luck.
But tragedy has changed through the ages and isn't just the stuff of nobles and kings these days, nor is it reserved solely for theater. Many novels are considered tragedies today, and follow similar conventions as those Greek dramas of old. Check out Steinbeck's Of Mice and Men or Ken Kesey's One Flew Over the Cuckoo's Nest for examples of how tragic plots can play out in fiction, too.