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Prose is a term applied to any kind of discourse that is not poetry. This term usually, but not always, refers to written rather than spoken language. As the format of everyday communication, the term prose can apply to anything from a business letter to a 600-page novel.
It may be easier to define prose by examining how it differs from poetry: the distinctions between the two are most evident in the structure. Prose does not have a rhythmical construction like most poetry, nor does it utilize the specific line breaks associated with verse. It does not require the use of rhyming words at the end of lines, and it is does not employ the brevity and economical use of words for which poetry is often known.
There are some elements of poetry, however, that prose does utilize. These elements include the use of metaphor, the comparison of two unlike objects, and alliteration — the use of similar sounds at the beginning of words. Prose can also employ imagery, a term for the use of specific details that help to create the concrete visual world in the mind's eye. Imagery is like a painting made out of words.
From the Latin words prosa oratio, which mean "direct speech," prose is the dominant form in literature. It the accepted mode of writing for novels, short stories, plays and folk tales. This form is also used on the Internet and in everyday business communication.
Non-poetic language most likely became the dominant form of written communication, because the structure of poetry can be very demanding as well as time-consuming. Poetry involves strict limitations of rhyme and meter. Also, the spare use of words and focus on vocabulary make poetry an unlikely choice for communication on an everyday basis.
In the history of language, prose is the younger sibling of poetry. Linguistics experts claim that it developed as a formal means of communication after poetry developed. They believe that the use of poetry originally grew as a way to remember spoken stories. Apparently it is easier for the human mind to remember words that have a rhythm.
The development of non-poetic language as a formal means of communication can be traced back to sixth century Ionia. It was used to record historical and mythological stories. The history of Herodotus, believed to have been written between 490 BC and 425 BC, is the first surviving example of a complete work of non-poetic language.
@MrsWinslow - Maybe the difference lies as much in how it's marketed and for what purpose it's intended. Maybe the difference between poetry and prose is sort of like the difference between erotica and pornography -- partly in the artist's intention, partly in the eye of the beholder, and partly determined by certain conventions. Poetry is usually more, well, poetic than prose, no matter what shape it's written in.
If you want a word that limits its meaning to traditional poetry, meaning that it has lines of a certain length and rhythm, you can use "verse." It's broader in some ways than "poetry" -- Shakespeare's plays were written in verse, but you wouldn't really call them poems -- but it is more narrow as far as the structure.
It seems like the lines between prose and poetry are a lot more fluid these days. Even the idea that poetry has lines (which are broken at a certain point) while prose is paragraphs that go all the way to the right edge of the page seems to be falling apart. I had a creative writing professor in college who considered her work poetry even though it had the shape of paragraphs. But her work was very cutting-edge; she called it "experimental."