I think the way it works is that Elspeth asks if referencing Alice and Jasper''s experience of whatever they are going through now would help them understand this memory that Elspeth believes is true.

Though this explanation seems backwards from what is implied by:

"Yes," said Magic, "this sounds about right. I would let you use this story to say something true about Alice and Jasper."

I would have expected it to be:

"Yes," said Magic, "this sounds about right. I would let you use Alice and Jasper's experience to say something true about this memory."