As Aristotle says, “Tragedy is an imitation not of human beings but of action, life, happiness, and unhappiness.” Very few of the great tragedies could possibly be based in reality. For instance, how likely is it that a great king once discovered that he killed his father and married his mother in real life. The purpose of this tragedy is to show the downfall of a great leader. This includes action, life, happiness, and unhappiness just as Aristotle says. Who would want to read something about a person that bad things happen to if the reader does not understand why it happens and the reason for the reaction?
Another example would be Antigone. It was not written to watch a woman bury her brother and have everyone around her die. The purpose is to gain insight on the human way of life. The story tells of duty and honor, not of death and politics. We are made to care about not necessarily Antigone herself, but her cause. That is what makes a great tragedy.