What’s the difference between magical realism and fantasy? In a word, worldbuilding. According to Wikipedia, “Worldbuilding or conworlding is the process of constructing an imaginary world, sometimes associated with a whole fictional universe. The resulting world may be called a constructed world.”
In magical realism, the world is already built. It’s the real world or as close as you can get to it in fiction. These works would be considered realist if there weren’t elements of the surreal within them.
In other words, fantasy offers an epic escape while magical realism is more like mainstream fiction. Magical realism or magic realism tells a story with supernatural components like ghosts or talking cats.
I think people who write magical realism do so because there are elements of the real world that we don’t fully understand. There are mysteries. We have theories, but we lack facts. Fantasy creates its own facts.
Still confused? Check out my suggested reading list. Reading one of the books I list there might clear things up.