Most of the named animals represent specific figures of the Russian Revolution, and so their characterization is based mostly in historical fact. Orwell uses exaggeration to show how easily Stalin overpowered his rivals and became a dictator; exaggerating, for example, the sheep into almost mindless parrots of government policy shows how the mob mentality created ideal conditions for a dictatorship. This serves to show the reader how conditions came into being while also showing how the animals themselves are duped; the reader can see the outcome long before it comes to pass.
Of late the sheep had taken to bleating 'Four legs good, two legs bad' both in and out of season, and they often interrupted the Meeting with this. It was noticed that they were especially liable to break into 'Four legs good, two legs bad' at crucial moments in Snowball's speeches.
(Orwell, Animal Farm, msxnet.org)
This quote shows how the mob, caught up in its emotional fervor, ignores the substantial issues raised by Snowball in favor of the entirely emotional arguments of Napoleon. This characterization is exaggerated, and yet is all-too common at political events even today, and even in Democratic countries. In this manner, Orwell calls attention to the failure of the Russian Revolution to create real change, a lesson that continues to be relevant to this day.