And I wound up writing a little essay I wanted to tidy slightly and put here for future reference, because otherwise it will be gone like the five and dime. And I can see future situations where it would be useful....
In the US, it's usually used for what seem to be two or three distinctly different marketing categories. Which is to say: (1) books such as War for the Oaks, the sort of classical urban fantasy, which involves modern everyday persons in a city setting in sudden contact with the numinous; (2) modern-day fantasy noir detective novels, a la Jim Butcher; (3) romance (or smut) in a fantasy suit, a la Keri Arthur, aka "Paranormal Romance," which I guess is a term the Romance genre hates to have us appropriate, because they have their own uses for it.
Low fantasy is a term I more often hear used for books such as Leiber and Pratchett, which are second-world fantasy but *not* concerned with the doings of the great and noble saving the world.
The identifying facet of "urban" fantasy, as we know it (as the term is used in the US today) seems to be about the infringement of magic on a mundane world recognizably our own--or very close to it: the world of Sunshine isn't quite our world, but it's a world where our basic assumptions about how the world works still hold (even when that makes the worldbuilding kind of wonky, because it's both a city under seige and a completely mundane setting)--rather than the necessity of an "urban" setting.
In other words, as its used, the "urban" in "urban" fantasy seems to be a code word meaning "Our real world right here or one much like it" rather than, as would seem logical, a code word meaning "takes place in a city."
The code word for "takes place in a city and features non-noble characters and everyday concerns" seems to be "low fantasy." (As opposed to high or quest fantasy.)
And then you can bring in "fantasy of manners" and have the argument about how Swordspoint is not like Jhereg.
I'm not a big believer in categorization, my own self, except in the sense of "I read a book (x--let's pick War for the Oaks, as for many people it's *the* type example of what they mean when they say "urban fantasy")and I loved it; what else can I read that's like War for the Oaks?"
And I might say, well, you could read Gael Baudino's Gossamer Axe, or Pamela Dean's Tam Lin, or Megan Lindholm's Wizard of the Pigeons, or Jim Butcher's Storm Front, or Keri Arthur's Full Moon Rising, or Robin McKinley's Sunshine, or my own Whiskey & Water, or Tom Robbins' Jitterbug Perfume, or Tim Powers' Last Call--what was it you liked about War for the Oaks? Because all these other books have some similar type characteristics.
And all have some major differences, of course. But I'm a descriptivist rather than a prescriptionist, and the thing they all have in common--the only thing that all books I've generally seen categorized/understood as as "urban fantasy" have in common--is that intersection of (or trangression of) the numinous with (upon) the mundane world.
In urban fantasy you don't leave the chip shop and go to another world to find the unicorn. Rather, the unicorn shows up at the chip shop and orders the cod.
And now, a shower and tea and work. Because today is my day to WORK.