How do you incorporate sound effects and music into an audiobook without overwhelming the narration?

Technically speaking, the best practice to integrate SFX and/or music in an audiobook is to record it in stereo, with the SFX and music set off about 20° from center on both sides. Also, any added effects should never pass about 20% of the gain of the voice. (In terms of overall gain, this will make them about 5%.) This allows for the central voice to stay clear and crisp without the effects overwhelming or muddying it.

However, as Matt above says, few audiobooks benefit from added effects. Those are more for radio dramas, which are another art form.

Honestly, I'd say skip on sound effects and music entirely. The medium works best when left to a strong narrator who tells the story in a compelling fashion and creates the world without unnecessary distractions!