In Fantasy: The Liberation of Imagination, Richard Mathews says that fantasy “is a type of fiction that evokes wonder, mystery, or magic--a sense of possibility beyond the ordinary, material, rationally predictable world in which we live. . . . [it] is clearly related to the magical stories of myth, legend, fairy tale, and folklore from all over the world. . . . [It is] a fiction that elicits wonder through elements of the supernatural or impossible. It consciously breaks free from mundane reality” (1-2).
So, we're all on the same page regarding what fantasy is.
What about fairy tales? A.S. Byatt says, "The characters and motifs of fairy tales are simple and archetypal: princesses and goose-girls; youngest sons and gallant princes; ogres, giants, dragons, and trolls; wicked stepmothers and false heroes; fairy godmothers and other magical helpers, often talking horses, or foxes, or birds; glass mountains; and prohibitions and breaking of prohibitions." Apparently, the definition of fairy tale is less straightforward, but I agree with Byatt's comments.
My friends maintained that a fairy tale is merely a fantasy with an internally-inconsistent magic system. I'm not convinced. But, the beauty of being a creative artist type is: you can do what you want and call it what you want!
How about you? What would you say a fairy tale is?