In China, all these web novels been considered as one big type, YY novel.
So what is YY novel? YY sands for 意淫, which's phonetic transcription is Yi Yin. So what does 意淫 means? Well a similar words is 手淫(masturbate), 手 in Chinese means hand, and the first character in the 意淫 is 意, which means mind. No go figure what's 意淫(YY) means.
The usage is just for joke at first, but soon it gets so popular that people simple couldn't find a better words to describe such kind of novels. In the most general way to speak, reading these kind of novel gives you a extraordinary pleasure that similar to image you have sex with [insert any actress that you are dreaming for here].
This name also implies that such kind of novel is not at the same serious level to those classic novels. It usually don't have a very rigorous background setting([Lord of the Rings]), the author usually can't make more than 10 characters feels like a real person in the same time (A Song of Ice and Fire), but in my opinion it just set the author's imagination free, and allow them to tell so many good story.
So we have the name "YY novel" to describe this kind of novel in a general way, what's the more detailed classification for us heavy reader? Here's the well recognized way of web novels classification used by qidian.com (the most successful and influential web novels site) and other Chinese sites.
科幻: Kehuan, 科(science) 幻 (fiction). I don't need to explain it right?
奇幻: Qihuan, 奇(intriguing, magical) 幻 (fiction), usually refer to novels that set in a western culture background. It usually have kings, noble, knight, magic, elf, dragons, and sometimes heaven, hell, angel, Demons and Gods. This type should be the most familiar type for westerns. There are some very good Chinese YY novel in this sector, and I think translate them are a good ideal, like [Coiling Dragon], names in this type of book are western, your MC's name wouldn't be Xiao Yan, Yang Kang but Rodriguez, Lancelot. For translators I recommend a book named 亵渎 (literally means blaspheme). Don't know if anyone had translated it but I can assure you this is a really good book. Oh and 魔法学徒(mage apprentice), the earliest Qihuan novel of Chinese web novel, a really good one.
玄幻: Xuanhuan, 玄(abstruse, unreal) 幻 (fiction). This term is use for those fiction set in a eastern culture background(in contrast to 奇幻Qihuan). In Xuanhuan you get five basic element (metal, wood, water, fire and earth), Chinese style gods, powerful animal monster like fox and tiger who can transform to human look, Taoist practice that allow human to become immortal, etc. It's a really general type, and Xianxia is just a subclass of this type. You guys already read a lot of Xuanhuan novels here!
Wuxia: I think most of you are already familiar with this type.
Xianxia: Another term you guys are familiar with, but I think most of you already found taht the definition some translators here give before are not that accurate, it's because they some how mistake Xianxia and Xuanhuan, which is understandable. Xianxia is a subclass of Qihuan, it's more focus on a key background setting that human can become immortal(仙xian) through Taoist (in most case) ways. There is another term almost equals to Xianxia called 修真, 修(practice) (to become) 真(true, immortal).