"Realism" in literature gives readers the sense that "This could easily happen, and probably has."
"Fantasy" re-words that quote to say "This could never happen, but suppose it could."
Whether a fictional story is realistic or fantastic, it must always be interesting and enjoyable if it is to keep readers reading. C. S. Lewis had insights into what makes writing interesting (or not), and I want to summarize them as an aid to understanding literature in general, and also as a warning against the idea that modern realism is the only good way.
All fiction has two elements which we must clearly separate if we are to understand why we enjoy what we read. That "why" is important because understanding it allows us to be fair when we judge a book—or its author. The elements are Content and Presentation, either of which may be Realistic or Fantastic in any degree or combination. Each element has its fans. But presentation is not the same as content. And content is more than a series of events (i.e., the plot).
No story appeals to everyone, but it helps to understand why. Readers who look primarily for Presentation—i.e., the details of setting, atmosphere, clothing, manners, speech, and so on—whether Realistic or Fantastic, will condemn any story without them as mere news reporting. Readers who look primarily for Content—i.e., the sequence of events and character changes—whether Realistic or Fantastic, will get confused or frustrated by a lot of presentational clutter. Readers generally favor some spot between those extremes, and most can tolerate some measure of what they don't prefer. So, authors should always know their audience and what's necessary to keep them reading.
A story is like a Christmas tree: Plot is the trunk; it may be more or less straight or crooked. The characters and supporting story threads are branches and sub-branches, each with plot-related quirks, surprises, and secrets. All the ornaments, lights, and garlands are the presentation.
Stories may have rich content which does not need to be realistic to be enjoyable. Nor must a story have any presentational ornaments, lights, and garlands to be enjoyable (but then it would be just a tree, not a Christmas tree).
Stories may have a rich presentation which need not be realistic to be enjoyable. Nor must a story have a trunk with branches, sub-branches and so on to be enjoyable (but then it would be a potted plant smothered in decorations).
C. S. Lewis (1898-1963), author and professor first at Oxford University and then Cambridge University, said that the history of literature is rich in all combinations (and omissions) of these attributes, and that every literary age, including ours, has its dominant mix. As he wrote in An Experiment In Criticism, © Cambridge University Press, 1961, Chapter VII titled On Realisms:
The two realisms are quite independent. You can get that of presentation without that of content, as in medieval romance; or that of content without that of presentation, as in French (and some Greek) tragedy; or both together, as in War and Peace; or neither, as in the Furioso or Rasselas or Candide.
In this age it is important to remind ourselves that all four ways of writing are good, and masterpieces can be produced in any of them. The dominant taste at present demands realism of content [and usually realism of presentation as well]. The great achievements of the nineteenth-century novel have trained us to appreciate and to expect it.
Lewis could as well have written that the two fantastics are quite independent, and then given us different examples to show it. But the point is the same: All four combinations of Realism, Fantasy, Content, and Presentation are good, and masterpieces can be produced in any of them.