If you ask me (or my agent), commercial fiction is genre fiction; the genre stuff tends to sell to the largest audience.
I mean mystery, romance, horror, thrillers, suspense, fantasy, SF; all are easily-defined for the mass audience. You know, basically, what elements you're going to find in a mystery, a romance, a thriller.
I (just my opinion) don't include lit-fic in the commercial fiction definition because it's all so different that it can't, as a genre, be so easily defined or labeled.
I believe readers pick up lit-fic titles because the individual books appeal to them, or they've learned to trust a particular writer to give them the kind of story they want to read. (Or it's an Oprah pick!) Same thing with "general fiction" titles, if that's a genre in itself and not just a place they shelve what doesn't seem to fit elsewhere.
I believe readers pick up the commercial fiction genres without feeling the need to know so much about an individual book or author, because they want to read a mystery, or a romance, or a horror, or whatever, and recognize from the package that a book is likely to provide them the sort of read they want.
That said, lots of lit-fic becomes commercially successful, and lots of genre fiction doesn't.
It isn't a better or worse sort of thing -- like so much in publishing. And probably more of a marketing label than anything else.
But being in the business as long as I have, I can tell you with quite a lot of confidence that if you label what you're submitting as "commercial fiction" or "commercial literary fiction" you're way more likely to get a warm reception than if you leave off the "commercial" bit.
Publishing is a business, and the financial bottom line matters more and more. Agents and editors want books that they can package and sell, books that will appeal to the widest possible audience.
In my experience, of course.
