The quintessential urban fantasy novel is set in a contemporary, real life city but with magical elements, such as witches, vampires, or shifters. Of course, there’s a lot of variation in what exactly gets referred to as urban fantasy! You can find novels labeled “urban fantasy” that are set in small towns or in other worlds, but the vast majority use a “our modern world but with magic” setting. The genre has it’s own tropes and expectations going beyond the setting; for instance, mystery-based plot lines are another common feature.
Paranormal romance overlaps with urban fantasy in terms of setting and many of its tropes but it has a greater emphasis on the romantic elements. Love interests are often fae, vampires, or shifters. It combines romance with danger, mystery, and magic!