I think they're largely artificial. For example, to grab a track at random, De-Phazz's Love's Labour's Lost could easily be classed as any of chillout, trip-hop, jazz, torch or lounge. It's generally found in the "electronica" section of record stores, despite the fact that the instrumentation and effects aren't particularly electronic (just about all the instruments and vocals are essentially straight acoustic). Now, there are genres it isn't, like metal or punk, but there are tracks which blur boundaries in that area as well.
Genres serve a purpose, though: they make it easy to find music generally similar to music one already knows. This is helpful for buyers and us poor dj's who try (hopelessly) to keep up with developments in a broad range of music, but it can also have a stifling effect. I used to say that the only music I didn't like was rap, country and western, or opera, but I've found music in all three of those categories which I do like. If I stuck to "my genres," I'd be missing out on things that I've learned to enjoy, and I might also not appreciate the influences and nuances from other styles which appear in music in my "home" genres.
Taken to extremes, genre preferences and classifications can get pretty pedantic. The distinctions between goa, acid house, acid trance, psy-trance and suomisaundi (I love that word!), are, to say the least, arcane. To quote Wikipedia's article on acid trance:
A style of trance music emerged (sic) in the late '80s early '90s and focuses on utilising the acid sound. The trademark sound of "acid" is produced with a Roland TB-303 by playing a sequenced melody while altering the instrument's filter cutoff frequency, resonance, envelope modulation, and accent controls. This real-time tone adjustment was not part of the instrument's original intended operation.This is a pretty narrow definition, to the extent that I would consider a set with even half the songs being from this particular band to be pretty monotonous. The value in such a narrow definition obviously isn't in nailing shut a box, so what is it?
I think that in this case, it is a shorthand for describing the relationship of the music to other similar kinds of music. This is quite useful for a dj: acid trance is "between" trance and acid house, and as such, can be mixed into a set which is built around either of those for variety, or can be used as a transitional element to link tracks which would otherwise be jarringly disparate. The link is usually partly musical, and partly historical, with some styles mostly supplanting others (although there are usually artists creating music in supposedly dead styles).
In short: genre labels are commentary. The music stands by itself, and the labels can only approximate the reality. Nothing can substitute for listening.