Some time ago on SFSignal, a number of notable authors were asked to weigh in on the question of why monarchies are so overwhelmingly chosen as the governmental systems of fantasy stories. The article is here. It's actually quite a fascinating question, so I thought I'd give a few of my own thoughts on the subject.
I find it really easy to see why monarchies are so often chosen. Not only is there a certain romanticism in our cultural hearts concerning the age when monarchies were the dominant social structure around the world, but they do give you some big advantages in storytelling. The biggest one is simplicity.
Think about it. One Dark Lord. One Good King/Queen. It gives you focus. If you decide to go into more depth, it gives you a single character to go to the hilt with. It also saves you a lot of work. The workings of a democracy - as has been abundantly demonstrated in the US - are full of characters and underlying influences that we don't always understand. Somehow recreating, or redesigning, those influences in an entirely new world would be... messy. Difficult, to say the least. Please notice that I'm not saying we shouldn't do it - but this might be one reason why we typically don't.
Another reason is that we strive to achieve a feeling of difference in our fantasy. The familiarity of democracy would need to be explicitly counteracted in any fantasy setting, so that that sense of wonder would not be lost.
Of course, there are other options. I'd love to see someone tackle a communist government sometime - Ursula LeGuin did something along those lines with Orgoreyn in The Left Hand of Darkness. Of course, I'd hope whoever took on this type of government (or any other type, for that matter) would take their job seriously and look at the actual impact of example governments in order to explore both its advantageous and disadvantageous features.
The Varin government (from my novel) might look like a monarchy at first glance, but it isn't quite. I suppose you'd call it an oligarchy with one member who is more important than the others. The Eminence is the ruler, and has a throne, but wears no crown. He also has an official Heir, but the Heir is elected by vote of the fifteen members of the Cabinet. Each of the twelve great noble families provides a candidate, and they run off against one another in several rounds if voting until only one is left. It fits with my vision of Varin inasmuch as I strive to achieve a world that seems very familiar, but is marked with major differences from our own expectations.
What kind of governments are you working with in your projects? How diverse can our concepts be? What makes a familiar system work? What makes an extremely different system work? Must we always have monarchies? Seriously?
It's something to think about.