LAKE WOBEGON nestles vaguely in Mist County, Minn. "The town that time forgot and decades cannot improve" may not appear on any state maps, but it's becoming as firmly defined in the national imagination as Faulkner's Yoknapawtapha County or Winesburg, Ohio. And thanks to the magic of satellite technology, every Saturday night its population swells to 1 million as radio listeners around the country tune in to "Prairie Home Companion."

Lake Wobegon (pronounced woe-be-gone) -- home of Norwegian espresso, "where all the women are strong, all the men are good-looking and all the children are above average" -- is people by characters like the Bunyan family (who collect first editions of The Minneapolis Star), K. Thorwaldson (whose mother gave him a first name of a Senator, "becasue it had a nice ring to it"), Harold Star (publisher of the Lake Wobegon Harold Star) and poet laureate Margaret Haskins Durber (whose rhymes in poems like "The Finn Who Would Not Take a Sauna" are exquisitely farfetched).

There's the show's major sponsor, the miraculous Powdermilk Biscuits, which help overcome shyness, promote regularity ("Heavens, they're expeditious!") and are supposed to be semiaphrodisiac, though the wheat is raised by Norweigan bachelor farmers who are "not only good, but pure . . . mostly."

And there's Jack, the town's biggest booster, proprietor of Jack's Auto Repair Mall, home of Jack's Fountain Lounge, Jack's Correspondence School of Thought (offering a Head Stop program for intellectuals who want to learn things like bowling) and Jack's Toast House (with old-fashioned toasters in every booth). In Lake Wobegon, "all tracks lead you to Jack's, where the brightest flashing lights show you the way to complete satisfaction."

The town and the characters are creations of Garrison Keillor, 38, who hosts "PHC" and has written every script in the show's seven-year history. A long-time staple of Minnesota Public Radio, "PHC" is radio's last old-time variety show to be performed live before an audience. It's a cheerfully low-keyed mix of music -- mostly folk and jazz, with a strong ethnic flavor -- and whimsy gently propelled by Keillor's dry-whitted banter. The town's inhabitants pop up in commericals and community announcements interspersed throughout the show.

Commericials on public radio? Well, they're not real commercials, Keillor points out, and since real people are used to do commercials, they do provide transitions. "You can do a pitch and go on to anything else," Keillor says. "It's a wonderful device, as well as being a device for satire. You can comment satirically on anything you can think of instead of talking about a product. There's nothing you can't make into a product or commercial, which is a commentary of some sort, but I think it's absolutely true."

Last May, "PHC" went national via NPR's new satellite system and is now heard on over 110 stations (including WETA-FM on Saturdays from 8 to 10 p.m.). It's the most popular locally-produced program on NPR stations and generates more membership income than any other Minnesota Public Radio program. Keillor admits that it's a little out of place, "like a cowboy come to a prayer meeting," on MPR, which is primarily a "classical music service . . . and a lot of public-affairs programs with colons in the title, like 'Sex: What Is Its Role in the Private Sector?'" The program regularly beats 17 ot its 20 Twin City commercial competitors in head-to-head ratings.

For Keillor, the show is a resurrection of the spirit he remembers from growing up listening to national radio shows like the Grand Ole Opry and local variations like "Sunset Valley Barn Dance" and "Good Neighbor Time," where the live audience would stay after the show to watch the radio announcer read the news.

"That's all 20 years behind me so I'm kind of reaching in the dark, and I never know if I succeed. I don't think it's as important for me to know if I hit the right chord. It's important to keep doing it and keep looking for it. That's worth as much as whatever success you have."

He first became involved in radio in 1960 at St. John's College in Collegeville, Minn., where he broadcast over the university station -- until someone discovered that the transmitter had been out of commission for a year. "I always thought it odd that I never heard from anybody," Keillor says in a soft, almost wistful cadence. He speaks so slowly that sometimes it seems his words take a nap between his mouth and microphone. His phrases are as calming as a snowy Minnesota morning -- a world away from the college days when he would read into a mailing tube to develop his delivery.

Keillor, whose tendancy to white suits and rumpled straw hats make him look like a misplaced Graham Greene character, also hosts a weekday program (mostly classical) on MPR. And he's made a mational name for himself as a writer. More than 30 of his pieces have appeared in The New Yorker (Anthenaeum will publish a collection this fall), and it was for The New Yorker that he went to Nashville in 1974 to write about the Grand Ole Opry. That experience became the inspiration for "Prairie Home Companion." Keillor was attracted to the Opry show's "liveness" (though the show is broadcast one day after taping). It was "charged with excitment above and beyond music," he recalls. It was "the old magic of radio as a connection to distant places."

In talking to Opry people, though, Keillor found "they were not conscious of what they were doing. They tended to think of radio as an adjunct to something else -- the record business."

When he got home, Keillor talked to other radio old-timers who "tended to denigrate what they did, to feel it was awfully primitive and therefore inferior to what they saw on television.

"I feel that they're wrong, and I hope and believe it's not simply nostalgia on my part. I feel they represented something real to me in all the ways that television is not real to me. Television tends to flatten things and make things smaller. I don't feel that way about radio."

Two months after Keillor got back from Nashville, he convinced his station manager to give the variety-show idea a shot. Drawing from the Twin City music scene, the first "PHC" show was aired live from a woefully empty theater where the technicians and musicians outnumbered the guests. Now, however, the weekly broadcasts at the 650-seat World Theater in downtown St. Paul sell out instantly.

On stage, along with fictional scores for the Whippets softball team or the football Loons and activities at Our Lady of Perpetual Responsibility Church, Keillor has real-life regulars -- including the Butch Thompson Trio and Vern Suttion of the Minneapolis Opera. He also welcomes such Minnesota eccentrics as Dr. Tom Weaver, who taps out the "William Tell Overture" on his teeth. Even with the national hookup, "PHC" has remained fiercely Midwestern and has never tried to get national names. "They belong more to television," says Keillor. Musically, the show is an eclectic blend of folk, jazz and blues, with frequent ethnic doses of Scandinavian, German and Irish.

But always there's the storytelling. Keillor manages to spin such a compelling serial myth, complete with family histories and plausible small-town scenarios, that listeners tune in week after week to find out what's happening at Bob's Bank ("Neither a Borrower nor a Lender Be. Your Money Is Safe at Bob's. Stop in at the Sign of the Sock") or what's on sale at Ralph's Pretty Good Grocery ("if you can't find it at Ralph's, you can probably get along without it"), like the 29-cent ashtrays -- 89 cents if you want them mounted in the beanbag.

Some listeners take it very seriously. Letters addressed to Lake Wobegon are forwarded from the town's post office (possibly located between Bertha's Kitty Boutique and Earl's "As You Like It" Barbershop) to MPR's offices in St. Paul. Many of the letters ask about "products" advertised on the show. "We break the news to them very gently," Keillor says with true compassion. "We are very kind in pointing out that it is fiction. Oddly enough, they do not complain."

Keillor, who writes his Saturday scripts on the Friday before the show, is committed to "PHC" through May 1982, but feels that "right now, things look bad. I think anybody in public radio with any sense can read the numbers in figuring that we don't have much time, as far as projects like this." Could he continue the show with real ads? "Oh, no, I don't think so," he laughs quietly.

"I think that I have a long life as a writer," he says, "and that radio shows have a fairly short life. And that's good because you have to keep making room for new things to come along. When we do our show on Saturday night, we are taking up all sorts of time on those radio stations across the country. The air is a limited resource, whereas if I write something, I'm not taking anything away from anybody, I'm not dominating a scarce resource in the same way."

Winters are hard in Lake Wobegon. The "retired Holsteins" have to stay in the barn, and Bud Sodoberg, the town's maintenance man, has to use dynamite to dig graves. Business is brisk, as usual, at the Fearmonger Shop, which caters to people who are terrified of everything with such items as structural steel wallpaper and safety toilet seats ("elevated 36 inches above the water out of the reach of deadly snakes, even those that stand on each others' shoulders").

Raoul, whose Warm Car Service lets customers sleep an extra 15 minutes while he sits in their cars, is doing pretty good business, as is the St. Paul Helsinki Sauna: "the hottest in town. Steam, not sin. If you're feeling stinky, head for the Helsinki." Also prospering are the surrounding "dale" shopping malls -- Chippendale, Royandale, Clydesdale, Airedale, Mondale and Beerandale. And on and on until the program ends with the sponsor theme for Powdermilk Biscuits, "which give you the strength to say what you mean, in so far as that is possible."

"It becomes more real to me the longer I do it," Keillor sighs. "I've felt for a long time that I might come across the town, that I might actually be up in that part of the state and take a wrong turn someplace and it would be there. It would be just as I describe it . . . except much more so."