Big moments in history are often used as backdrops for new or composite characters: the American Civil War for Margaret Mitchell's Gone with the Wind is an obvious one. Scarlett and Rhett are characters she created out of her imagination. Famous people like Emma Goldman, Harry Houdini, and Booker T. Washington are mixed into the fictional story of E.L. Doctorow's Ragtime: A Novel. Real people, modified events. In both instances, the time, the place or the people are widely recognized by the readers as true, something else is created. Is this Photoshopping? Not unless we are being tricked without our knowledge.
We don't expect these works to correspond to reality, but we do expect to believe in the world that is created for us in book form. We can go to an accurately described Venice with a fictitious detective, for example, and have a nice armchair trip with a plot. If the geography doesn't work out correctly, say it takes five minutes to go a distance that in real life takes five hours, we probably won't want to read any further. Funny, how that works. Real places, people, and things, must behave as we know them. Fictional towns, characters, and objects can have their own rules. Can you bring them together like Photoshopping? Yes, if we understand which is which.
English classes tend to throw out the term "suspension of disbelief," originally coined by Samuel Taylor Coleridge (1772-1834), which turns out to be exactly what we are talking about, the combination of the "truth of nature" and the "colours of the imagination" (pages 90-91 on Project Gutenberg in Biographia Literaria):
During the first year that Wordsworth and I were neighbors, our conversations turned frequently on the two cardinal points of poetry, the power of exciting the sympathy of the reader by a faithful adherence to the truth of nature, and the power of giving the interest of novelty by the modifying colours of the imagination.Coleridge goes on to describe the two kinds of poetry. One is where the characters have real emotions under "supernatural" circumstances: we sympathize for the people in the strange scenes. In the second, ordinary people are given almost "supernatural" feelings regarding the "loveliness and wonders of the world." We learn how to see through their eyes. I think we are back to Novalis in the attempt to making the strange familiar and the familiar, strange.
Whether s/he chooses heightened awareness of known daily life or real feelings in the face of an imagined situations and places, the writer has the ability to cut and paste and integrate, creating a meaningful fictional story with truth at their core. The result can be assemblage in its best form.