For me, short fiction is a window. It is a window into a world that gives you a small glimpse of a much larger room. It is a window into a person that gives you insight into a time for said person when things changed. It is a window into our selves, into what it means to be human. A short fiction story is a moment, plucked from the much larger time and space of an existence, which provides all these windows into that existence.
In speculative fiction, this window also presents a world that is not like our world yet, at its core, is truly our world, just from a different angle. The reader looks through the window and thinks "Look at this amazing place. It's so different from this familiar, moribund, nay dreary, place that I'm in right now" and the reader is drawn to keep looking through the window as the story unfolds. Of course, by the end of the story, the reader thinks "That place, it's not so different" and has learned something new about their previously familiar world. Hopefully, they even leave the short fiction with the belief that no matter what the circumstances perhaps things can, just possibly can, through work or struggle, be a little bit better.
It seems like these days should be a heyday for short fiction. People are always compressed for time. We take our entertainment in smaller and smaller chunks. Short fiction should be perfect for carrying around and enjoying while waiting in line, for listening to while driving in the car, for poring through on a web page, for paging through on a mobile device, for absorbing in a small quick dose as part of a larger magazine or web site with a bigger, more general, subject area.
It might just be that short fiction needs to continue get out of the single-focus short fiction magazines and evolve into all these places. Short fiction does appear as a podcast (like EscapePod and PseudoPod), as a single short story in a larger magazine (like in the old OMNI or the Nature short-shorts, or like Cory Doctorow's recent work in METRO and FORBES), as downloads for IPAQs and Blackberries and cell phones (like from FICTIONWISE); as PDFs or web pages (like e-zines and the old SCIFI.COM the occasional digest story).
This should continue. WIRED should have a story or two a month, as should Popular Science and Make and Red Herring and even Scientific American and Tricycle and everything else. National Public Radio should have a regular show which consists of one or two short stories, read out loud by authors or actors. There should be "short fiction" podcasts all over the Internet. Popular science and culture sites should have a story or two.
In order to fit into the different, tighter formats, short fiction might need to move to even shorter stories. At 1500 or 2000 words, a story is as long as a good web post, or a big blog entry, or an informative magazine article. This means that writers will have to learn new skills to create meaningful (speculative) fiction with that few words. The novella is thought of as the natural length for short fiction, but most people don't read novellas (7K - 17K words) in these new, electronic, time-challenged, settings.
I don't think that short fiction will ever die. It will more fully become the "garage rock band" of (speculative) fiction, as Patrick Nielsen Hayden calls it. Today, garage bands don't just play in garages. They play in clubs, and proms, and street corners, and on myspace and YouTube and wherever else they think they can reach an audience. It's time for short fiction to expand beyond its traditional home in the magazines and find the audiences all over the Internet and all over the world. Go forth, short fiction. Your readers await.