Nick works as a link between the more morally centred Midwest where Gatsby originates and the corrupt, hedonistic East coast society that has lost its way. His job is to highlight the past and how easy it is for a ‘Gatsby’ to be created as he himself can be seen to become intoxicated with the lifestyle. However, he notably returns to the Midwest at the end of the novel as he finds the east distasteful. He is narrator as well because he writes a history of Gatsby that only hints at his corruption, instead he focuses on the more heroic and attractive side of his character. We know this because he symbolically rubs out the curse words scrawled on the ground by kids after Gatsby’s death and he famously quotes that while he found everything about Gatsby wholly distasteful, he was still “worth the whole damn lot of them.”
He is a foil for all the other characters, especially Gatsby and Tom. Tom is the "old rich"; Gatsby is the "new rich"; and Nick is the prototypical middle-class proletarian. Whereas Tom and Gatsby's desires are focused, Nick's desires are vague. Whereas Tom and Gatsby are dishonest, even criminal, Nick thinks that he is the only honest person he has ever met.
Nick is an observer-participant narrator. Throughout most of the novel, he is a fly on the wall, an outsider looking in. He is from the Midwest and relatively naive to the decadence of the Northeast. He tells the novel in flashback, and Gatsby is told entirely as such. He is only main character to attend Gatsby's funeral.
Nick uses the novel to construct himself and Gatsby. In this way, the novel is a kind of bildungsroman and Nick is unreliable as a narrator. He certainly thinks he is better than he really is. Fitzgerald uses his narration as a grand, ironic setup and send-up of the self-righteousness of the decade.
There are several reasons for this, but one is that Nick is both an insider and an outsider. All of the people and events that we read about are filtered through his knowledge of the world Daisy and Tom inhabit and filtered through his slightly outsider status in that world. Nick is a distant relative of Daisy, and his family is financially comfortable. This gains him entrée into Daisy and Tom's world as a social equal. However, because he is from the Midwest, and he is a stranger to the social scene of the East coast, he is able to offer the reader a more critical view of the people who inhabit this "scene." Finally, because he is both insider and outsider, he is able to see that Gatsby is an interloper and to admire how he has created himself.