An allusion is a reference to something that a writer or speaker expects the reader or listener to be familiar with and recognize. Allusions add deeper meaning and broader texture to what is written or said: there is an underlying body of knowledge and experience behind allusions that both narrator and audience share. A literary allusion is a specialized kind of allusion that draws from previous literature or current literature, literature that the narrator can reasonably expect the audience to know.
The opening pages of A Northern Light are replete with literary allusions, some definitely intentional, some seemingly accidental. For instance, the opening line, "When summer comes to the North Woods," makes me think of a combination of Robert Frost's "The Silken Tent" ("At midday when the sunny summer breeze / Has dried the dew") and "Stopping By Woods on a Snowy Evening" ("To watch his woods fill up with snow. / ... / The woods are lovely, dark and deep."). This allusion, perhaps accidental, to Frost's poems adds an immediate sense of melancholy to Donnelly's story before even ten words are on the page.
Similarly, whether in an intentional or accidental allusion, "the sky ... becomes an ocean of blue," calls to mind Emily Dickinson's poem, "A Bird Came Down the Walk," specifically the mood enhancing metaphor of the bird swimming in the ocean of the sky:
I offered him a Crumb
And he unrolled his feathers
And rowed him softer home –
Than Oars divide the Ocean,
Literary allusions that are obviously intentional also occur in the early pages. For instance, "Eve had as she bit" is an Biblical literary allusion to Eve's ill-fated encounter with a fruit in Genesis in the Bible, while "Jesus ... [his] pa wasn't a carpenter" is a Biblical allusion to the New Testament Gospels. Shakespeare's Hamlet is rather obviously alluded to in the comment about "Hamlet when he saw his father's ghost." Webster's Dictionary is even more obviously alluded to (and, yes, allusion to Webster's Dictionary may be counted as a literary allusion) with the phrases "Webster's International Dictionary of the English Language" and "Frisdom? Dreadnaciousness? Malbominance?"
As you read through the book, look for expressions that bring to mind other pieces of literature, such as the allusions to the Dictionary and Hamlet, and for expressions that may indirectly bring up moods or images related to poems, stories, novels, or dictionaries (!) you have read in the past.