It could mean a lot of things. Maybe it's a name of a special being in the fanfic's version of the Naruto world. It might be an elf - like creature that has some kind of power that can't be tamed or understood, which is what 'yaserarenai' could imply.
Yes, it can be used. You could incorporate 'elf san wa yaserarenai' as a unique concept in a Naruto fanfic. For example, if you have a character in the Naruto world who is from a different dimension or has a strange power, you can name it 'elf san wa yaserarenai' and build a story around how it affects the Naruto universe, like how the characters interact with this new element and how it changes the power dynamics.
I'm not sure exactly as I haven't read it. But generally, a light novel often involves a unique story, perhaps in this one it could be about a vampire (kyuuketsuki) and their daily life including an afternoon nap (ohirune).