The main goal is to have fun, getting to know each other, creating a vision for the team, exercising imagination, appreciating diversity of thoughts and styles.
You need to sit around a table or in a circle, so that everyone can see and hear each other. Possibly have one person be the recorder (on paper or with recording device) – this is optional; consider whether it may inhibit people, and whether archiving of the story would be of use.
The organizer can decide if the story will be on a certain theme, and if so, identify it. (e.g., “What our organization will be like in 5 years, and how we will get there”; “The day everything went wrong with our big event.”) The story could be about a real challenge the team faces and how to deal with it, with fantasy okay or even encouraged or required.