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Fiction characterized by highly fanciful or supernatural elements.
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That is the definition for 'fantasy' or at least the one I found.
The books have many 'supernaturel elements' such as elves and the one ring. But even with all these, Tolkien can make them seem real, not a fantasy. I think it is mainly because there is a whole history to Middle-earth, I think that is what makes it different than other fantasy novels. Most others, you just read it and are left to guess, how all the beings there came to be, why this is called such and such, etc.
This is just my point of view, but everyone else's opinions are interesting, and have gotten me thinking about it even more!