What is the meaning of this line from Aristotle's Poetics: "Fear and pity may be excited by ... which is the preferable method and the mark of a better dramatic poet"?
Poetics by Aristotle
"Fear and pity may be aroused by spectacular means; but they may also result from the inner structure of the piece, which is the better way, and indicates a superior poet. For the plot ought to be so constructed that, even without the aid of the eye, he who hears the tale told will thrill with horror and melt to pity at what takes Place. This is the impression we should receive from hearing the story of the Oedipus. But to produce this effect by the mere spectacle is a less artistic method, and dependent on extraneous aids. Those who employ spectacular means to create a sense not of the terrible but only of the monstrous, are strangers to the purpose of Tragedy; for we must not demand of Tragedy any and every kind of pleasure, but only that which is proper to it. And since the pleasure which the poet should afford is that which comes from pity and fear through imitation, it is evident that this quality must be impressed upon the incidents." (Part XIV)
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The quotation in your question seems to be a paraphrase of the first sentence of the translated passage I've added in the space below your question. That first sentence is:
Fear and pity may be aroused by spectacular means; but they may also result from the inner structure of the piece, which is the better way, and indicates a superior poet.
To understand the meaning of this sentence, let's analyze it by parts. To start, Aristotle specifies "fear and pity" because his argument regarding the nature and qualities of tragedy rests on his observation regarding human nature that "pity is aroused by unmerited misfortune, fear [is aroused] by the misfortune of a man like ourselves" (Part XIII)
In this sentence, Aristotle explains the two ways fear and pity may be aroused or generated in the feelings of the audience (or reader). The first means is by the "spectacular": spectacular: dramatically daring or thrill large-scale display (Random House Dictionary). If you think of Mary Shelley's Frankenstein or Bram Stoker's Dracula or Robert Louis Stevenson's Dr. Jekyll and Mr. Hyde, perhaps especially Jekyll and Hyde, you may get a sense of what "spectacular" means regarding inciting fear and pity (perhaps even Shakespeare's King Lear).
The second means of arousing fear and pity is as a result of the "inner structure" of the plot ("piece"). What Aristotle means here is that fear and pity may be generated through the natural progression of the state of affairs as they work themselves out through the plot of the tragedy. Going back to King Lear, this play is a good example of fear and pity generated as feelings through the natural progression of events and personality interactions in the inner structure of the plot of the piece. King Lear makes a premature decision and makes an unthinking demand. The tragedy ensues and fear and pity are aroused as the decision and demand are brought to fruition through events and the interaction of the personalities of the characters: fear and pity are aroused by the inner structure of the piece.
Another good example of this is the novella The Dead by James Joyce: the hero suffers as a result of the progression of events and character relationships as developed in the inner structure of the piece. Aristotle's point is that the second means of arousing fear and pity (as the result of the inner structure of the piece) is the "better way" to arouse these emotions and indicates the work of a "superior poet": the implementation of the second means indicates the poet with greater skill, understanding and poetry [remember, all literary pieces were written in poetry in Aristotle's era].