In general, literary fiction has a certain artistic prestige associated with it. Sometimes that is because it focuses more on character than on plot, and at other times because it plays with the novel form in some kind of exciting or challenging way. This is as opposed to genre fiction, which might be more of a comfort plot-driven read.

Overall I don't really subscribe to this binary between literary and genre fiction -- I think there's a fair bit of speculative fiction that is serious character-driven art, such as the works of Ursula Le Guin. I'd also recommend Cloud Atlas by David Mitchell (made into a movie by the Wachowski sisters) as a lovely work of form-bending fiction that's hard to classify as one to the exclusion of the other.