It is more complex than a simple definition. Here are some good explanations I've found for the literary genre Magical Realism:
"...it’s appeal is rooted in reality and dares to explore magical elements present in that very reality, very elements that are often taken for granted and ignored..." (http://thefiendish.com/2009/02/a-journey-through-a-magical-landscape/)
"Magic realism, or magical realism, is an artistic genre in which magical elements or illogical scenarios appear in an otherwise realistic or even "normal" setting. It has been widely used in relation to literature, art, and film." -- Wikipedia
"A literary mode rather than a distinguishable genre, magical realism aims to seize the paradox of the union of opposites. For instance, it challenges polar opposites like life and death and the pre-colonial past versus the post-industrial present. Magical realism is characterized by two conflicting perspectives, one based on a rational view of reality and the other on the acceptance of the supernatural as prosaic reality. Magical realism differs from pure fantasy primarily because it is set in a normal, modern world with authentic descriptions of humans and society." (http://www.english.emory.edu/Bahri/MagicalRealism.html)
"Literature of this type is usually characterized by elements of the fantastic woven into the story with a deadpan sense of presentation." (http://www.themodernword.com/gabo/gabo_mr.html)
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