I've spent my entire life reading books from the fantasy genre. There are countless books and stories that could be classified into this genre, including Harry Potter, Twilight, the Chronicles of Narnia, and the Lord of the Rings. There are many qualities about great fantasy novels that deserve mention, and I plan to highlight a few of my personal favorites.
The first element is the world of the novel. Many fantasy novels take place in a world other than our own, which makes it easy to imagine you are someplace far from the stresses of your daily life. It is easier to believe that dragons, elves, dwarves, trolls, and fairies exist when reading a story that takes place in a world of the author's creation. Many people believe Tolkien to be among the best authors in this genre, and he started by creating a map of Middle-Earth before he put pen to paper. David Eddings goes into great detail in The Rivan Codex about how he created his world with details about all the major nations and their history before he started writing the story.
The second element is a believable magic system (or similar aspect). I've read some stories where it seems like the protagonist, or one of their companions, just so happens to have a magical spell for the situation that they forgot about until that pivotal moment in the story. Fans of the fantasy genre are willing to believe a lot of things on faith. We expect to see new breeds of monsters, races of elves and dwarves coexisting with humans, and some sort of magical power that exists on both sides of the conflict. When a fireball cast by a character on page 33 is a small ball of orange flame and then on page 277 it suddenly is a bright red inferno that wipes out half of an army, we need to know what caused the change and be able to believe it is possible.
Perhaps the best example of putting boundaries on magic comes from David Eddings. In The Belgarion series we are introduced to a magic system known as the "the will and the word" where the sorcerer uses his mind and speaks a command and the magic occurs. But there are two limitations: magic cannot be used to unmake something (it will kill the sorcerer who tries) and using this magic will tire the sorcerer as if he moved it physically.
The third and final element is the heroic quest. I like reading about King Arthur and his knights riding off in search of the Holy Grail. I like a journey that takes a hobbit across the land to the lair of a dragon to do some burglaring. There are almost always obstacles along the way, close calls that add suspense, and opportunity for the growth of the cast of characters. And as long as the object at the end doesn't grant some unreasonable advantage (such as the ability to obliterate all enemies with a single thought) without some sort of restriction (such as only one who wants it but doesn't want to use it can obtain it) then it doesn't ruin the story, so long as it is relevant to the story of the novel in some way.
What sort of elements do you enjoy in a fantasy novel? What things in your favorite book stand out in your mind as the things that make it your favorite?