As my previous post inevitably dissolves into another literary fiction vs. genre fiction debate, in which the literary fiction people get on their high horses and the genre people collect paychecks, consider this:
Genre in its purest form exists for a singular purpose: To help you find the books you want to read. "Genre" is a classification system used by libraries and bookstores to herd people towards the type of literature they are looking for at the moment. Now the categories are more narrowly defined, but it wasn't always this way.
In Western Europe during the Middle Ages, what books were being produced were largely religious in nature. Books were monstrously expensive to produce. Most of our fiction from that period is some author's hand at recording oral traditions (which is why a lot of this literature seems to look the same). The non-monastic book production industry relied on noble patronage, and undoubtedly the noble would specify what kind of book they wanted before the first page was properly stretched out from bleached calf skin. After all, if you're spending a small fortune to have something made for you, and then wait years for it to be finished, you're going to be rather specific about what you want the final product to look like. While devotional books were popular (like a Book of Hours), those who could afford to be patrons of the arts also preferred tales of suspense, romance, and adventure.
With the invention of the printing press and the dramatic reduction in the cost of paper, it became affordable for authors to dream of creating a book on their own and just hoping it would sell, though they probably had an audience in mind. There still was no formalized system of dividing books by type of story, simply because there weren't 3-story bookstores to wander around. You had access to the books that were available in your area, or maybe you could get something popular on loan from a circulating library (a popular source of book distribution in Britain in the 1700's-1800's). A reader probably could generally find out what the book was about by asking the store owner or the librarian.
The dividing of books into specific genres is a commercial instinct. Growing up, my local library had three sections: Adult, Children's, and Video Tapes. It was a fairly small library, but I remember being frustrated by it once I moved out of the children's section, because the adult section seemed to mush everything together and the librarian was less interested in pointing me in the right direction and more interested in running the children's programs.
Bookstores operate on the basic principle that you, the reader, probably like only certain times of fiction, and if you just happen to be browsing, it will be easier for you to find new authors if they're in the same section with the authors you're familiar with because they write the same type of book. This rigid classification system has changed not only the way books are sold, but how they are developed, and how they are viewed.
Barnes and Noble has a "Fiction and Literature" section, because it sounds better than "General Fiction," but I deeply suspect that a lot of authors who are in there are in there because they were published before categorization was so strict. Today, Joyce's Portrait of an Artist as a Young Man might wind up in memoir even though it is about a fictional character who happens to heavily resemble the author. Jane Austen's Pride and Prejudice might show up either in women's fiction or even in romance, depending on the store's decision. Mary Shelley's Frankenstein would undoubtedly be buried in the sci-fi/fantasy section. Shakespeare, a playwright, would be in that tiny section for plays. Imagine Sei Shōnagon's The Pillow Book being mislabeled and winding up in the erotica section. And so on.
One could make the argument that while our modern sensibilities think this is cheapening the way we treat the classics, genre labeling is what it is - a method of enabling the reader for find the type of book they like and other books that might be like it. Since all books need to find a reader, all books belong to some genre, however hard it may be to define - but that's probably because no one's tried to define them yet.