The dramatic and thematic function of a play within a play varies from play to play—there is no one formula as to why such a vehicle is used—but in A Midsummer Night's Dream it does fulfill a typical function: it points to the fictive or illusory quality of all that has been performed. In French, a play within a play is called a mise en abyme, or being "placed in the abyss," but this does describe the distorting-mirror effect of a play like Pyramus and Thisbe (that the mechanicals perform). It reinforces a theme articulated by Puck, which is that perhaps all we have seen, even the main play, is a dream or illusion—as is perhaps love itself.

Shakespeare uses the "play within the play" concept in the same way in The Taming of the Shrew. Because Shakespeare understood the fantastic, fictive nature of a plot in which a strong willed woman is brought to heel by her husband, he created it as an open fiction from the start. In A Midsummer Night's Dream, Shakespeare uses the comic treatment of the play's plot and theme to point to the way love always hovers on the edge of tragedy. While Midsummer is a comedy, meaning everything resolves happily in the end, any love affair is always balanced on a knife's edge and can as easily fall apart. We can and do laugh at love's lunacy, but, as this play within a play shows, love is always a fragile entity.

Hermia and Lysander's forbidden love wins out because Theseus softens, but it didn't have to go that way. Likewise, due to the machinations of the fairies, Demetrius and Helena find happiness together, but it could have easily continued to be an abusive relationship of abject devotion and contempt. If the main play shows love triumphant, the mise in abyme points to the opposite truth: the Pyramis and Thisbe plot shows how easily luck and circumstance can twart love's fulfillment.

Because eNotes educators are permitted to answer only one question at a time, this explanation will concentrate on the first of the two questions above.

A parallelism does indeed exist between Shakespeare's play A Midsummer Night's Dream and the play-within-the play called Pyramus and Thisbe. The story of these two unlucky lovers, Pyramus and Thisbe, is from Ovid's Metamorphoses, an important source that (scholars believe) Shakespeare used to write this play.

Because the parents of Pyramus and Thisbe are enemies, the young couple cannot be open about their love for each other, and they are unable to marry. This circumstance leads directly to their deaths. The theme of forbidden love is also present in A Midsummer Night's Dream, as Hermia's father cannot tolerate Lysander, the man she loves. Though this unfortunate situation parallels the woeful tale told in the story of Pyramus and Thisbe, Shakespeare's play is fortunately a comedy, so no one dies at the end, and a marriage celebration takes place instead.

The play of Pyramus and Thisbe that occurs in Act V scene 1 acts as a serious reminder in an otherwise humourously comic play of the situation of the lovers at the beginning of the play.

We are encouraged to see the parallels between the situation of Pyramus and Thisbey and Lysander and Hermia - both lovers' unions are blocked by parental will, both lovers try to cheat fate by eloping to the woods together and both lovers suffer as a result of mis-communication and mistakes (Puck makes a mistake with hilarious consequences whilst Pyramus leaps to a conclusion with rather more tragic consequences).

Given its timing in the play, the play within a play, whilst being a very funny bit of drama (although unintentionally) and commenting on the relationship between artifice and reality, also serves as a reminder of how differently things could have been resolved. The recent film production pictures this brilliantly, when the lovers all are suddenly moved by Thisbe's suicide and are forced to see an alternative ending of their story.