I have a reader question on writing this week (have a question? Let me know!). This one addresses the business side of things: What are the differences between the various genres? For instance, what's the difference between an urban fantasy and a paranormal romance?
To a large extent, genre is a marketing concept. It determines where a book gets shelved in a bookstore and how it gets promoted. Publishers will put a book in the place they think will allow it to sell the most copies, and the content of the book isn't always the sole determination. For instance, I wrote my Enchanted, Inc. series thinking of it as fantasy that used (and spoofed) some chick lit tropes, but it was published as chick lit and shelved in mainstream fiction because that was what was hot in publishing at the time, and the fantasy elements gave a bit of a twist to the hot genre. Then that backfired when chick lit rapidly tanked. Oh well. However, you as the author don't have a lot of control over this, but you do need to have a sense of the genres so you'll know where to submit your books, since the various genres usually do involve different editors or different parts of the publishing company.
Focuses on the investigation of a crime and usually that crime is solved (the crime novels with no solution tend to be considered "literary" and are shelved in mainstream fiction). There may be romantic subplots, but these aren't the focus of the story and you might even be able to remove them and still have a coherent plot. In series, the romantic subplots don't have to be resolved at the end of the book, so that it can take an entire series for a couple to really get together. Paranormal elements may be involved, but the focus is still on the mystery instead of on exploring and investigating this paranormal or fantasy world.
A love story in which two characters overcome or resolve various internal and external conflicts in order to commit to each other in a relationship. In other words, a happy ending. Love stories where the couples don't end up together -- where they go their separate ways or someone dies -- are generally considered mainstream fiction or literary. There may be subplots like a mystery, but the love story needs to be so essential to the plot that you couldn't remove it and have a coherent novel. There can also be paranormal elements, but the love story is still front and center, and the paranormal elements should probably play some role in either bringing the couple together or keeping them apart.
These are the literature of "what if?" They involve a world that is in some way different from our own, either from extrapolation of science or technology that allows things to happen that don't happen now in our world or from the addition of some impossible element, like magic or magical creatures. There are distinctions between what's considered "science fiction" and "fantasy," but for the most part they don't matter because they're usually handled by the same people and shelved in the same bookstore section. Generally, if it's based on something that's theoretically possible without changing the way the universe works, it's science fiction. If it's based on something that changes the laws of the universe, it's fantasy. In practice, it comes down to spaceships and robots=science fiction, dragons and wizards=fantasy, regardless of the details or story structure. These genres can contain elements from all the other genres, in varying degrees, and even to the point where you can't remove those plot elements from the story and still have a plot that works (so they could fit within those other genres), but books published as science fiction/fantasy aren't bound by the conventions or rules of those other genres -- the love story can end badly, the murderer may escape.
Mainstream or literary fiction is a big catchall and may be where a genre writer goes when he or she "breaks out" and becomes a bestseller. It's also for books that don't fit anywhere else or break all the other rules. "Literary" generally means less focus on plot, more focus on character exploration, theme or writing style.
Where things get really confusing is when a book blurs the lines. There are urban fantasies that could easily be published as paranormal romance. There are paranormal romance series that are more like urban fantasy because they break some of the romance conventions, like not getting the couple together in the first book and spreading the romance out through the length of the series. A lot of this comes down to marketing decisions. Placement may depend on the author's reputation -- if the author has previously written romances, her urban fantasy may be published as paranormal romance. It may depend on where the books most similar to this one are, so it may be put into the same section to try to ride their coattails or may be put in a different section to differentiate it. It may even be timing -- there's too much competition in this month in one genre, or the publisher has a slot available sooner in one genre than in another. Sometimes it's just which editor gets her hands on it first. And then once an author is established in a genre, that's where he/she is likely to stay, unless something changes or unless something isn't working and the author is repositioned.
For that original question of urban fantasy vs. paranormal romance, in general, the urban fantasy is focused more on the main character's relationship with the world (and the love interest is part of that world) while the paranormal romance is focused more on the main characters' relationship with each other, which may be complicated or facilitated by their world. But there are lots of exceptions, and those exceptions were likely marketing decisions.