This story is essentially the search for understanding of self embarked upon by Jacob, the protagonist of this novel. In particular, what Jacob needs to come to terms with is the stories that his grandfather told him about his past, which Jacob comes to realise may be largely fabrications. After Grandpa Portman's death, Jacob suffers something of a breakdown, and he goes to his grandfather's house to help sort through his things. There he finds photos that are obviously manipulated, showing such scenes as a baby levitating when in fact it is obviously hanging from a rope, and a young woman who is made to appear to be inside a bottle.
Photographs are symbolic of memories. The way that these photos have obviously been tampered with are symbolic of the way that Grandpa Portman deliberately tried to manipulate or change the memories that he had in order to forget what was in the past. Eventually these fabrications replaced his real history, substituting fact with fiction. This of course ties in with one of the key themes of the story, which is reality vs. fiction and the cost of living a life that is a lie, which is pointed towards by this quote:
We cling to our fairy tales until the price for believing in them becomes too high.
Photographs therefore become symbolic of the ways in which Grandpa Portman tries to edit his past and his life story, eventually showing the way in which tangible memories and what we think occurred can actually be something very different.