I think one of the things that is necessary for fantasy to be great is that it be set in an environment that can be believed. I don't mean that it necessarily has to be realistic as in identical to the mundane world we live in every day. I can be that. Some of my favorite fantasy takes place in very nearly what we know as the real world. But it can also be as different from our mundane world as the author wants it to be, as long as he or she can write it so that I believe it, can feel it, can imagine being in it.
Two examples:
Tim Powers has written some wonderful urban fantasy that takes place in our world pretty much exactly as is. Well, the characters can do things that most of us probably can't do, and that is what makes the fantasy. But the actual settings are almost photographically realistic. One of his books, Earthquake Weather is set partially in an area just a few blocks from where I used to live. Because I know the area, I know exactly how well he described the area (street names, intersections, and such) is a completely realistic way. I could actually picture the places as I read the book. This in no way made it harder for me to accept the fantasy aspects of the story; in fact, it probably made it easier for me to do so.
On the other hand, Stephen R. Donaldson's two Thomas Covenant trilogies are set in a world quite unlike our own in many ways. However, he wrote the environment of that world so well that it provided the only case of my actually dreaming I was inside the environment he had created for his books. I was able to get so involved in reading those books, in part, because the environment the story took place in felt to real to me.