literary what?

I've been hearing this term bandied about lately: "literary fiction." It rather mystifies me, but I find genres usually do. I suppose writing style or intended audience is just as arbitrary and therefore reasonably unreasonable as content and conventions to categorize something, since the categories are so restrictive and artificial anyway...but it certainly made me pause for thought.

Anyhow, I have been looking for this excerpt for a few days now, and finally found the version that I prefer (there is an oral, as well, and a "primary" source too, I would imagine), so I thought I might share it. Very egocentric, that sentence. Ah, well. From pages 179-80 of Mitch Albom's Tuesdays With Morrie: An Old, A Young Man, and Life's Greatest Lesson, lauded and degraded by O's book club and I suppose a prime example of "literary fiction":

"I heard a nice little story the other day," Morrie says. He closes his eyes for a moment and I wait.
"Okay. The story is about a little wave, bobbing along in the ocean, having a grand old time. He's enjoying the wind and the fresh air—until he notices the other waves in front of him, crashing against the shore.
"'My God, this is terrible,' the wave says. 'Look what's going to happen to me!'
"Then along comes another wave. It sees the first wave, looking grim, and it says to him, 'Why do you look so sad?'
"The first wave says, 'You don't understand! We're all going to crash! All of us waves are going to be nothing! Isn't it terrible?'
"The second wave says, 'No, you don't understand. You're not a wave, you're part of the ocean.'"
I smile. Morrie closes his eyes again.
"Part of the ocean," he says, "part of the ocean." I watch him breathe, in and out, in and out.