I'm pretty cut-and-dry about certain fantasy elements.

A story which includes things that don't exist* = fantasy.
A story which details events that could reasonably, truly happen = not a fantasy.

* Ghosts, vampires, zombies, unicorns, etcetera.

Both BUFFY THE VAMPIRE SLAYER and WITHOUT A TRACE have dealt with helping people, having a dangerous job, dealing with interpersonal relationships, and coping with loss. However:
BUFFY THE VAMPIRE SLAYER: Fantasy.
WITHOUT A TRACE: Not a fantasy.

Both THE GOLDEN COMPASS and BECAUSE OF WINN-DIXIE boast determined young girls who keep their favorite animal (almost) always by her side and who have questions about her parents. However:
THE GOLDEN COMPASS: Fantasy.
BECAUSE OF WINN-DIXIE: Not a fantasy.

I could say THE GHOST WORE GRAY by Bruce Coville is about overcoming prejudice and THE DOLL IN THE GARDEN by Mary Downing Hahn is about consumption, but they still have ghosts in them and thereby drift into the land of fantasy. THE GHOST WORE GRAY and THE DOLL IN THE GARDEN are both good historical mysteries for kids that include friendly ghosts. If I had a nickel for every time I read either of these books . . .

Some books toe the line between genres or blend them into a delicious smoothie. (Mmm, smoothie. I'll have soy milk and strawberries in mine!) Is THE INVENTION OF HUGO CABRET by Brian Selznick a graphic novel? No, not in the way that collected comics or manga are, I suppose, but it's certainly not a picture book either. HUGO is an illustrated novel, with its pictures just as important to the storyline as the text.

I enjoy dystopic futuristic novels that detail advancements in technology, but I'm quick to point out which stories are just that - futuristic and plausible sci-fi - as opposed to outright fantasy. I really enjoy the UGLIES sequence by Scott Westerfeld. It doesn't have any unicorns in it, but it does have hoverboards, screens, and tracking devices which may be closer to being in existence than we think. After all, some of the spy gadgets I saw on COVER UP and other spy-based television programs twenty years ago are now being used by people on a daily basis. Consider webcams, for example. They are not unlike the little cameras or projection screens the good guys used during briefings. Think about all of the programs that are available on cellular phones and similar hand-held devices. Those are based in pixels and chips, so they aren't the same as unicorns.

Maybe someday Unico will gallop through the fields while talking to Stephen Colbert on a hands-free (hooves-free?) cellular earpiece. Until that day comes, if someone writes a fictional book about it, I would shelve it in fantasy.

Related Posts:
Genre Study: Fantasy
Fantasy Novels for Kids and Teens
Funny Fantasies for Kids and Teens
Fairy Tales Retold
Booklist: Dystopia

I personally think there are many subgenres within the fantasy realm. Here are just a few:

There's urban fantasy, set in contemporary times in the world as we know it, but with characters becoming infused with superpowers, utilizing magic, or discovering that magical creatures exist. Neil Gaiman has written many urban fantasies, such as American Gods, Neverwhere, and Anansi Boys.

Consider the more standard fantasy novel: set in an unspecified time, but typically seems medieval; set in our world or something like it; involving knights, dragons, warring kingdoms, royalty, and other fairy-tale elements; and a sense of propriety and etiquette, customs and traditions. I would place the lovely Stardust by Neil Gaiman in this section.

Then there are fantasy stories regarded as classics. I tend to like those written in the Victorian era. Some may employ fairy tale elements. Many tred the mythology path: a character, typically a child, loses his or her way and is helped along by various characters, both good and evil. I have a penchant for Alice's Adventures in Wonderland and Through the Looking-Glass and What Alice Found There by Lewis Carroll. (I will never tire of these books. Ever.)

What about classics like The Time Machine, you ask? Once a book involve inventions, technology, and other science bits, I tend to categorize it as science fiction. What about War of the Worlds? Spaceships and aliens also fall under the heading of science fiction for me. There are plenty of sci-fi sub-genres, but that's another post. The line between fantasy and sci-fi can be blurry, and I like the view. I don't like when people make rash generalizations. I can really break it down, if you insist: Dragons? Fantasy. Robots? Sci-fi. Dragon robot? Both - and, if it's kind and intelligent, may I please have one?

There are modern fantasy classics as well, distinguished as such because we are no longer in the decade in which they first hit bookshelves, but we are still within fifty-odd years of their publication. The NeverEnding Story by Michael Ende. Many of Madeleine L'Engle's works.

Some people are quick to call a newly-released book "an instant classic," a turn of phrase I dislike. I would prefer to say something was "destined to be a classic," because it cannot already be a classic if it just came out last week. (It should be noted that I resisted the urge to place that last phrase in bold type.)

I really could go on and on about this genre, but for now, I'll wrap this up, then create a separate post for the YA fantasy booklist which Kiba requested.