This term is used for novels in an Eastern fantasy setting. In Xuanhuan, there are usually five basic elements (metal, wood, water, fire, and earth), Chinese-style gods, powerful animal monsters like foxes and tigers that can take on human appearances, etc... It's a mishmash of different elements, and sometimes Xianxia-like elements are present. It's easy to confuse Xuanhuan with Xianxia.
Simple definition: Eastern-element Fantasy