Characteristics of fantasy of manners:
Tone - Fantasy of Manners books strike me as "cool" in tone--there's a distance between the narration and the event, even if the narration isn't omniscient, or else there is a focus on the wit of the telling more than the emotion. There *is* emotion, but it's more likely to be conveyed by action than introspection. In a book with multiple POVs, when the protagonist is feeling most intensely, the scene is *more* likely to be told from the perspective of someone observing him than from the pov of the protagonist himself.
Cities and modernity - These fantasies engage with what I will loosely and pretentiously call "the condition of modernity." They tend to take place in cities or suburbs or in communities characteristic of the modern world, i.e. part of extensive communication and transportation networks. The actual technology level may be contemporary (War for the Oaks), early Industrial (Swordspoint), or even medieval (the Secret Country trilogy)--but there will be a kind of fluidity of location, status, and identity that are generally defined as "modern".
Fantasy - This may seem to go without saying, but in fact I think it's important to specify, especially in relation to the use of cities and modernity. Traditionally, fantasy's been defined as pastoral and backward-looking; the definition of the genre has been Tolkien, rather than (say) E. Nesbit. These writers weren't the first to set fantasy in the cities, but prior to the eighties or so, urban fantasy had tended to be comic (cf. Unknown fantasy and magazine slick fantasy, wherein the "archaic" traditions of fantasy were juxtaposed with contemporary settings for the humorous disjunction), horrific, or limited to YA/children's books; the general tradition of fantasy was for rural/epic imaginary worlds.
"Fantasy of manners" is not synonymous with contemporary or urban fantasy, but the two subgenres did grow around the same time and there is considerable overlap.
It's in the context of fantasy that the use of contemporary and/or urban settings is so striking -- or at least was in the 80s and early 90s; it's very common now. There is science fiction that's recognizably akin to fantasy of manners, but by the nature of the genre, the urban settings do not stand out so much.
Domesticity/scope - This isn't universal -- I think the "fantasy" part of "fantasy of manners" allows "epic fantasy of manners" not to be a contradiction in terms, something that wouldn't be possible with other variants of the novel of manners -- but frequently these novels are unusually small in scale, focused either on personal destinies rather than the destinies of cities and nations, or showing those large-scale destinies from the perspective of individuals negotiating the power structures rather than controlling them. The traditional novel of manners (cf. Austen, James, Wharton) focuses on some of the most powerless of the acknowledged members of "good society", and something of that approach remains even in books which aren't predicated on extreme gender inequality.
Note also that the "novel of manners" by definition does involve "acknowledged members of good society". Protagonists attempt to negotiate a balance between social dictates and their own desires; they seldom attempt to overthrow or entirely disregard social dictates.
The term "negotiation" keeps coming up, again and again, in these descriptions. Negotiation as opposed to struggle is key here; it's the usual approach to obstacles and the presumed way to manage power.
Though this won't get in the way of a good swordfight or a magical duel with fireworks every now and then.
