How does the first-person point of view contribute to the plot of the story?Is this difficult for character development?
Any first-person narrative is, by nature, unreliable to a certain extent. It is nearly impossible to retain realism (which Robertson Davies does almost all of the time in this book, the first of the Deptford Trilogy) and not allow the main character's biases slip in. This happens, of course, in Fifth Business, especially in the characterization of Percy-Boyd Staunton.
Percy-Boyd (later Boy) Staunton causes the pivotal event of the book -- the striking of Mary Dempster on the head with a snowball. This event eventually leads directly to her madness -- but, because of Dunny's own guilt (and he was far, far less culpable than Percy-Boyd -- in fact, he was only tangentially involved as the intended target) he can never fully articulate the actual facts of what occurred. We have obscured facts, incorrect impressions, and missing meanings (some of which are never resolved until the end of the third book of the trilogy). All this is because of Dunny's own misplaced guilt, and by his need to view Mary Dempster as a saint. Because of this, we only see Boy as a skewed version -- perhaps the most skewed characterization of the entire trilogy. This is repeated in other characters, but not to the same degree.
There are other characters, such as Dunny's brother, who are skewed in different ways (Dunny doesn't end up spending very much time on him, except in regards to Mrs. Dempster). But there is no denying that first-person narration has limitations, and one of them is characterization. But a skillful writer (like Davies) can turn the skew that the narrator's perspective causes into an ultimately revelatory experience for the reader, through the careful exploration of the narrator's biases.