The correct statement that explains the difference between first-person narration and third-person narration is:
In first-person narration, the story is told by a character in the story, and third-person narration uses a point of view from outside the narrative.
This option accurately describes how first-person narration involves the narrator being a character within the story (using "I" or "we"), while third-person narration comes from an outside perspective, either focusing on one character or providing an omniscient viewpoint.