What is marketed as literary fiction tends to be "slice of life" kind of stuff; very realistic or minimal magic realism, usually working-class characters, and a fairly uncomplicated plot. One could say that literary fiction is anything not defined by genres of mystery, fantasy, sci-fi, romance, horror, or thriller.
With that being said, the term literary fiction implies that anything not literary fiction is not literature. I would think that anything you can buy that's not a text or reference book would be literature. Now we can fuss over what's good and bad literature all day; but to say that only a certain narrow part of today's creative writing is literary is a bit snobbish.
Which brings me to this point: the source of the term is either in the publishing industry or in academia, where pipe-smoking and tweed sweater-wearing English professors with Ivy League degrees wanted something to make them feel good about the fact that their books were only selling because they were on the reading lists of the classes they taught, while the genre writers were making serious cake.