Most of these “AI who can tell an interactive story” things are generally experimental and tend to be like storytelling improv you’d do with a friend where you say “I was walking down the street and I met a duck” and your friend responds “That’s no duck, that’s my best friend Percy and we decided to go to the grocery store.” “At the grocery store we bought bananas and a loaf of bread for Percy, but the cashier ripped off a mask and was a troll in disguise! Battle ensues!”
These are kind of fun to play with but tend to be somewhat absurd where the AI is just using what it knows about the things you tell it about to sort of weave a narrative. There’s very little structure in most cases. Some will barely pay attention to what you’re doing and just keep modifying the scenario; some will play along with what you ask it to do.
This form of AI improv isn’t great at telling a satisfying story as it’s basically making things up as it goes along, and AI tends not to have much of a long term memory and it will contradict itself about facts it gave you ten turns ago since most AI can’t remember everything it says. This is the phenomenon where people encounter situations where an AI seems to be “lying” to them.
It doesn’t build up a world model as it goes and doesn’t care if you’re in London at one moment and Chicago in another since it’s just throwing everything at the wall.
For AI to function as a GM, it tends to need a database of game rules and a world model to follow for consistency. We had a thread about a version of ZORK which basically plays as normal, but it can use the AI to improvise appropriate responses to actions that would normally not be understood and throw a parser error and I was shocked when PARKOUR THROUGH WINDOW worked and LISTEN FOR HOUSE OCCUPANTS actually gave a legit response.
The AI isn’t making up the story, it’s just helping to tell it.