I'm going to go out on a limb here and admit that "show, don't tell" is one of those writing shibboleths that throws me a little. I'll even admit that I sometimes get the phrase mixed up and can't remember which one is the "bad" one. This may be because I understand "telling" to be as it is defined here -- vague language, lacking in detail and bolstered by cliche, language which doesn't add much to the story and which bores the reader. And yet lots of people seem to think that telling is any form of narration, or any kind of description without drama to it.
I'm hesitant to admit this, however, or even to ask other writers what they think, because so many people treat "show, don't tell" as the 11th commandment. So I'm going to go out a little further on the limb: I don't think it's a commandment at all. I think, like many rules, it gets a little complicated when you take a closer look.
Thought number 1. My son's English teacher recently gave him an assignment of writing "show" paragraphs on various emotions. In these paragraphs he couldn't say why he was angry (or happy, or excited) or what this emotion made him do. He couldn't use any "to be" words, either. She wanted sentences like "Furiously, I rifled through my papers looking for my missing homework." The paragraphs, as they ended up, were loaded with adverbs and over-dramatic language. And yet this was apparently what "showing" is -- at least in the teacher's conception of it. (Note that the article I linked above actually calls use of adverbs a form of telling.)
Thought number 2. People were writing good fiction for years before "show, don't tell," came along. Pick up Dickens or Austen and you get a fair amount of narration and digressive scene building. Try Jane Eyre -- lots of tell there (do we really care about Jane's cousins' religious beliefs?) Read a really bad 19th century novel and you'll get tons of tell. Standard practice in the 19th century was so express a character's thoughts/feelings via background description. The poverty and narrow outlook of a certain character, for instance, would be conveyed by a description of her room and style of clothing.
Then came the modernists, who rebelled against all that. Modernist writers wanted to capture everyday life by showing the interior world of their characters through emotions, memories and passing thoughts. The reader was not to be told anything. Classic modern texts like Ulysses and Mrs. Dalloway are nearly all showing -- the events unfold as they happen and the reader has to piece together who the characters are and the relationship(s) between them.*
To me, this puts a different light on "show, don't tell." It evolved at a particular time in a response to a particular kind of writing. Is there a basic truth embodied in it? Yes. Is it helpful to remember as you write? Absolutely. If by "telling" you mean vague descriptions and cliches, I'm all in favor of stamping them out.
But I don't think every single book has to be written the same way by the same rules. I don't think there's anything wrong with narration as long as it is detailed, not digressive, and well-written.
*Readers hate this, by the way. That's why so many people fail to finish Ulysses.