My favorite definition of sword-and-sorcery is Joseph McCullough’s: “Fantasy with dirt.” In high fantasy, Aragorn grapples with Sauron over the rule of Middle Earth. In sword-and-sorcery, Fafhrd and the Gray Mouser are living on the street and complain about the smog (“The Cloud of Hate”). The scale is different, certainly, but more significantly the setting is different–grubbier and more threadbare. And any acts of heroism in Lankhmar appear on stage against a background of darker and more mercenary motives. That’s what I mean when I talk about grit in fantasy (and I like both gritty and relatively grit-free stuff, by the way; it’s all a matter of how well it’s done).
Realism and grit are always relative. One of the cool things about the spaceships in 2001 was that they were these immaculate shining instruments of human aspiration. And one of the cool things about the spaceships in Star Wars was that they were dirty, beat-up things that had to be kicked every now and then to make them work. Neither really has a claim to reality, but each has its own type of realism, one grittier than the other.
C.S. Lewis famously distinguished between the realism of presentation and the realism of content. Most questions of realism in sf/f hinge on realism of presentation: with what plausible concrete details these imaginary events are embodied? One of Lewis’ examples is “the dragon ‘sniffing along the stones’ in Beowulf“, and his own greatest strength as a fantasist was his ability to vividly embody the fantastic (sometimes at the cost of making it seem less marvellous).
But I think any claims a genre work has to realism of content should be treated with extreme suspicion. Fantasy and science fiction in particular, and fiction in general, are defined by their unreal content. Storytellers who start to preen about the realistic content of their stories are either trying to put one over on their audience, or they fundamentally misunderstand the cultural game of storytelling–in which case they are unlikely to do it well. That was my problem with the briefly fabled anti-fabulist “Mundane SF” movement.