Digital: multimedia (video, animation, presentation, etc) often widely available (online, cds/dvds).
Storytelling: narration of an event, person, place that might be real or fictional for a number of possible reasons (educational, remembrance, entertainment, etc) that usually follows conventional guidelines (characters, plot, climax).
Digital storytelling: a uniquely creative form of sharing that tends to be available online for both a specific and general (since anyone might stumble upon the website) audience made by amateurs and professionals of all ages/gender/race/groups. This creative form might be entirely user generated, copied bits and pieces put together (like fan videos), recorded from a live event (presented in a constructed manner), etc.
Challenges of digital storytelling: includes accessibility, temporality vs. permanence (especially in an online environment), copyright.
Ultimately, defining digital storytelling becomes difficult because either the author or the potential viewer might label a work as a digital story while others might adhere to more rigid definitions. A digital story is a digital story depending on the eye of the beholder.