Fantasy Wargames are wargames situated in fictional universes, often based or resembling universes described in Fantasy literature.
The term "Fantasy wargaming" is most often use to describe games set in a "High Fantasy" setting such as Tolkien's Middle Earth. Tolkien's Middle Earth was set in a world similar to medieval of dark ages Earth, but incorporated creatures of European folklore, such as Orcs, Elves, Goblins and Wizards. In this genre magical powers are common place.
But a more general usage of the term fantasy would also cover alternative history or science fiction genres.