Animal Farm successfully combines the characteristics of three literary forms--the fable, the satire, and the allegory.
Animal Farm is a fable--a story usually having a moral, in which beasts talk and act like men and women. Orwell's animal characters are both animal and human. The pigs, for example, eat mash--real pig food--but with milk in it that they have grabbed and persuaded the other animals to let them keep (a human action). The dogs growl and bite the way real dogs do--but to support Napoleon's drive for political power. Orwell never forgets this delicate balance between how real animals actually behave and what human qualities his animals are supposed to represent.
Part of the fable's humorous charm lies in the simplicity with which the characters are drawn. Each animal character is a type, with one human trait, or two at most--traits usually associated with that particular kind of animal. Using animals as types is also Orwell's way of keeping his hatred and anger against exploiters under control. Instead of crying, "All political bosses are vicious pigs!" he keeps his sense of humor by reporting calmly: "In future, all questions relating to the working of the farm would be settled by a special committee of pigs." (No wonder that when a publisher who rejected the book, afraid to give offense, wanted to have some animal other than pigs representing these bosses, Orwell called it an "imbecile suggestion.")
The aspect of human life that most interested Orwell was not psychological; it was political: how people act as a group, how societies are formed and function. Clearly, Animal Farm is a story about a revolution for an ideal, and about how that ideal is increasingly betrayed until it disappears altogether from the new society after the revolution. Since Orwell attacks that new society, and since, despite the grim, bitter picture he paints of it, he attacks it with humor (the humor of the beast fable), we can also call Animal Farm a satire.
The immediate object of attack in Orwell's political satire is the society that was created in Russia after the Bolshevik Revolution of 1917. The events narrated in Animal Farm obviously and continuously refer to events in another story, the history of the Russian Revolution. In other words, Animal Farm is not only a charming fable ("A Fairy Story," as Orwell playfully subtitles it) and a bitter political satire; it is also an allegory.
You can enjoy Animal Farm without knowing this, of course, just as you can enjoy Swift's Gulliver's Travels without realizing that it, too, is a bitter satire and in places a political allegory. But to understand the book as fully as possible, we'll want to pay attention to the historical allegory as we go along.