The correct statement 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 accurately describes the distinction between the two narrative perspectives. In first-person narration, the narrator is directly involved in the story, using "I" or "we," while in third-person narration, the narrator is external to the story and refers to characters as "he," "she," or "they."