I see it as difference between two of my 2 favourite contemporary works
Harry Potter - magical realism - takes place in our 'real' world with, I must say, substantial addition of 'magical' to it, but still, seen as normal by those involved
Lord of the rings - fantasy - whole different world.
Fantasy - If a story takes place in a world other than our own. If there is a magic system with rules and explanations it is not realism, Does not include "chosen ones' or prophesies. Magical realism is about ordinary people living ordinary lives. Magical realism involves mundane or everyday things, some magical realistic storylines involve witches and magic, they are usually of the natural, earthy, Wiccan variety, not the cackling old biddies who brew spells and eat children for breakfast.
