When it comes to moving your story forward there are usually two driving forces: plot and character. Because each one drives the events in a story a little differently, this gives us plot-driven and character driven stories.
With plot-driven stories, the events drive each other forward. High taxes from the king cause a famine in the kingdom, which leads to bandits stealing from the rich nobles to help feed the poor. Cause and effect directly affect what happens next. Often, plot-driven stories have a predictable outcome. The murder is solved, the couple gets married, etc.
Plot-driven stories often feature static characters. Arguably if you replaced any of the characters in The Lord of the Rings you’d have largely the same story. The ring would still be destroyed, Aragorn (or his replacement) would still take the throne. This is because the events happening are more important than the character development.
With character-driven stories, the reactions to each event drive each other forward. The high taxes cause anger which causes riots, which causes a civil war, which leads to the division of the country. In this case, emotions and motivations push events forward. Endings can be a little harder to predict because they’re often focused on internal goals instead of external conflicts.
Because the focus on character-driven stories is heavier, they rely heavily on character arcs and development. In The Hobbit, replacing any of the characters gets a little trickier. Replacing Bilbo leads to a few less questionable incidents (the trolls, anyone?). Replacing Thorin probably avoids the fight over the Arkenstone.
The main difference between character- and plot-driven stories is where the focus is. A story focused on external conflict lends itself more to a plot-driven structure. The conflict must be resolved in some manner, and as a result, events push forward to that inevitable resolution. A character-driven story is less about the end goal and more about the changes a character goes through during the course of a story.
If you’re wondering which one is better, the answer is neither. As a writer you may find yourself preferring one style over the other, but neither character- nor plot-driven stands firm as a ‘better’ option. Nor are they mutually exclusive. Going back to The Lord of the Rings and the Hobbit you can see that a character-driven story like the Hobbit gives way to a plot-driven story such as the Lord of the Rings. If Bilbo never steals the ring, then the ring never needs destroying. And, as above, with high taxes and a famine sweeping the land from our plot-driven example, it makes sense for a motivated Robin Hood to start stealing to help his community.
Which storytelling style do you prefer to write?