Fantasy is a huge topic. I believe it is a topic that knows no bound. Fantasy is extremely vast and in the world of fantasy, there is absolutely no limitation, unlike science fiction bounded by reality. Fantasy is also tightly related with magic. Most world of fantasy will have system of magic through many different ways such as "Mana", "Soul" or "Qi". Magic is such a strong catalyst to fantasy due to its presence in the past. Many tales in the past involves magics, which is supposedly a mere nature disaster, however people in the past believed it was the work of magic. However, whether it actually exist or not is still debateable. More importantly, its possibility of existence cause magic which does not exist, feels more real.
Fantasy utilizes magic really well. With a long history behind magic, although it is still unknown of what power magic in the past has, it does not stop people to imagine and dream of it. This led to magic capable of doing things impossible in reality, and it being easily understood, even if it doesn't make sense. There is a rule where too much fantasy will make it too difficult to understand as there is little relation with what we humans experience. However, too little fantasy will make it too much like science fiction with overflowing information of reality. Thus, a good fantasy has a good balance between fantasy and reality. It must have enough fantasy to be out of reality and yet easily understandable.
Anything that is not reality is fantasy. A good example of fantasy is through blending beings of reality, such as half fish half human, mermaids, or half tree half human, dryads.

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