This is a common practice that is used for improvisation theatre. It is an effective and funny way to make a team listen to each other and collaboratively invent a story.
Especially in the beginning, participants might feel a bit embarrassed and overwhelmed. But this is part of the learning experience and usually serves very well as an ice-breaker and creates lots of laughter.
We are all used to focus much more on what we say and less on listening to inputs from others. In this practice, we are forced to integrate our own ideas with the ideas of each of the participants. Moreover, it requires us to be spontaneous and adapt in a very fast manner. It really is a fast-track experience to agility and team collaboration.
This practice can be done with teams of 2+ participants. All members should position them in a physical chain to make clear who is 1st, 2nd, 3rd, and so on.
Usually, the moderator gives any kind of stimulation topic, e.g. "Tell a story about your most crazy adventure" or "Tell a story about your biggest fail". Then the 1st person starts with one word, the second one has to add a fitting word, then the 3rd one and this goes around.
Thus, a story evolves. A story that nobody individually has thought of. A story that is born from the collaboration of the team.
Check out these great links which can help you dive a little deeper into running the One-word story practice with your team, customers or stakeholders.