Fantasy is something that is make-believe.
Fantasy is a type of fiction. While, fiction essentially means anything and everything that is made up, i.e. not real, fantasy goes a step beyond. Fantasy is a genre within fiction. Fantasy refers to something that is made up but contains magic and/or other supernatural elements.
Fantasy often revolves around magic, witches, demons, vampires, werewolves, etc. Fantasy stories also often occur either in another time, on another world or in another dimension. However, that is not always the case, for example the Harry Potter series occur in the modern world and in England.
The simplest way to distinguish Fantasy from other fiction is to keep in mind that Fantasy stories cannot take place in the world as we know, such as magic, vampires, werewolves do not exist in our world.
Some popular examples of fantasy literature are the Chronicles of Narnia by C.S. Lewis, or the Lord of the Rings by J.R.R. Tolkien.