What is difference between fiction and literary fiction?

There is no definite line between fiction and literary
fiction. The distinction between the these two terms is very similar to the distinction
between "fine art" and "decoration".

Literary fiction is
probably best understood in contrast to genre fiction and pulp fiction. Detective
stories, fantasy novels, and espionage thrillers are all examples of genre fiction.
These books tend to rely on plot centrally and tend not to
employ poetic devices as heavily as literary fiction
does.

This means that, in general, when reading fiction you
would expect to see more use of metaphor, allegory, allusion, motif, and the whole
panolply of poetic devices than you would when reading genre or pulp
fiction.

Again, there is no firm or definitive line. Some
contemporary writers of literary fiction have eschewed use of metaphor to experiment
with "surface texture". These writers, however, remain deeply interested in character,
psychology, and many literary issues that have little to do with
plot.