García Márquez isn't writing a literal history of Colombia, but the events of the book mirror actual history fairly closely. So it helps to know the basics about what was going on at the time.
After the Bolivarian revolution of the 1810s (named after its leader, Simon Bolivar), the Spanish colonies in Latin America were liberated, and the northern part of South America became a giant quasi-country that was trying to figure out how to be an independent state. By the 1850s, pieces of it had splintered off to become Venezuela and Ecuador, and we ended up with what today we know and love as Colombia.
A lot more internal squabbling followed, which led to full-out war. The last part of the 19th century was basically one long civil war, with just a few pockets of peace breaking out now and again. Mainly, the issues were between Conservatives (which believed in more religion, less sex, more social repression, less welfare state) and the Liberals (no church in government, socialism and progressive values for all). In the book, this all matches up pretty neatly with Colonel Aureliano Buendía's radicalization and revolutions.
This ongoing conflict died down a bit under the influence of the good ol' US of A, which flooded Colombia with money in the early 1910s and 1920s to create the Panama Canal in the service of American trade interests. This flood of money ripped off another chunk of Colombia: a piece that became Panama.
But US government money wasn't the main problem. The main problem was the United Fruit Company, which piggy-backed onto the US government's involvement to start a kind of corporate colony for growing bananas. They weren't technically in control of the government, but when a large corporation spends a ton of money in a relatively poor country, guess what – it gets a lot of influence with the local officials.
So yeah, long story short, there really was a banana worker strike, and there really were about 2,000 peaceful strikers exterminated by Colombian army soldiers. It's not really clear how much collusion there was between the army and the United Fruit Company (you can probably imagine that no one was too psyched to take responsibility for that particular event), but there was obviously some. Obviously, García Márquez recreates all of this history through the eyes of José Arcadio Segundo, who survives the massacre.
After the United Fruit Company packed up and went home, the civil wars flared up again. This time, although the fight was basically the same – Liberals vs. Conservatives – the weapon of choice was assassination. In a period of about twenty years, about 200,000 people were assassinated. There's no exact recreation of this in the novel, but we get some hints in the way the seventeen Aurelianos are hunted down and assassinated. Also key to understanding this history is the book's idea that the civil wars will never stop unless someone has the good sense to remember the past.
The Buendías are wildly numerous and reproductive. We watch them emerge from seemingly the dawn of time itself, and their shared experiences manage to cover pretty much every major historical event in the history of Colombia after it gained independence from Spain. The family we come to know as individuals can be taken as symbols of a whole culture and country.
Why would García Márquez transform his characters into an allegory of Colombia? Well, it might help to take a broader view of the novel's context. García Márquez was one of a small group of writers from all over the world (also including Italo Calvino in Italy, Jorge Luis Borges in Argentina, and Mikhail Bulgakov in Russia, to name a few) who felt that realism was just not up to conveying the total insanity of the middle of the twentieth century.
Instead of throwing out the baby with the bathwater, they created a new genre, magical realism. The main way this genre works is by keeping the narrative realistic while at the same time having characters or events break the physical rules of our actual universe. And while these rules are being broken, the characters react as though nothing were out of the ordinary. (Check out "Writing Style" for more on this.)
Why does it make sense to write about the twentieth century by having crazily disruptive, irrational things intersect with normal life? There are many who point to a sudden mid-century sense that reason had stopped functioning and that the world was brutally chaotic and random. (Hint: those two World Wars might have something to do with this.)
In the novel, we are watching the formation of a town. Unless you're playing SimCity or Monopoly, this is probably one of the more boring geopolitical processes to observe. So to spice up our fun quotient, the town becomes almost another character in the book – changing, growing, and eventually dying alongside the humans who live inside it.
Think about the progression. We begin with the first settlement, which is described in language borrowed from the Book of Genesis in the Bible – particularly the part where Adam gets to walk around the Garden of Eden and name all the stuff he sees.
Then we get the introduction of technology, which is brought to Macondo by the traveling pack of gypsies, who are just as happy to demonstrate magnets and astrolabes as they are flying carpets and alchemy kits. (Some of these things work and some don't).
Quickly following that is the intrusion of the federal government, in the form of Don Apolinar Moscote, the mayor, and eventually, actual armed troops.
And finally, the last ingredient in the mix is a multinational corporation, the banana company, which spends enough money to get a lot of clout in the Macondo but isn't above a nefarious stratagem or two.
Combine, mix, and stir, and you've got yourself a temporarily prosperous city. So what happens to make it all fall apart? How would Macondo be different if it had never grown as big as it gets? Which of the elements we just mentioned is the most dangerous or damaging?
There's actually a pretty long tradition of books featuring houses with imaginary rooms, imaginary libraries, or collections of imaginary objects. For imaginary rooms, check out the various versions of the Bluebeard story, Lewis Carroll's Alice's Adventures Through the Looking Glass, and Kafka's The Castle. For imaginary libraries or books, there's Umberto Eco's The Name of the Rose, Rabelais's Gargantua and Pentagruel, and G.R.R. Martin's newest entry in his Song of Ice and Fire series.
In One Hundred Years of Solitude the Buendía house expands outward without ever giving us a very good sense of how big it is, what it looks like, or what its layout might be. How close are Rebeca and José Arcadio (II)'s bedrooms, for example? Does everyone sleep in his own room or do people share bedrooms? Is there only that one bathroom where the tile can be peeled away enough to sneak in from the outside? We really never know what the house is like.
Inside the house is the very mysterious room where Melquíades died and some essence of him was preserved. To some people the room seems immaculate; to others it's a centuries-old mess; and to some extra-special people, Melquíades himself can appear there to share his wisdom and knowledge.
We have a whole library of the writings Melquíades left behind, sealed in some kind of multiple encoding – coded lines of Spanish put out of order, somehow translated or transliterated into Sanskrit, and then written on crumbling manuscripts that fall apart when touched.
Basically, there's a lot going on in this house, and there's no way to figure it all out.