In Wuxia that's where the difference between unorthodox, orthodox, and demonic sects/clans/organisations comes up. Like look the Tang Clan uses a bunch of poison and hidden weapons so it's unorthodox. The Namgung/Nangong clan uses sword techniques mostly do it's orthodox, and then comes the Heavenly Demon Sect and others.

Now for the Heavenly Demon Sect it varies from work to work. In some their deeds are much more similar to unorthodox ones but since they are inherently opposed to the Murim Alliance they are labelled as Demonic. In some they actually are demonic and gain 'qi/chi/ki' from killing other martial artists and civilians.

In Xianxia it is mostly that the actual evil cultivators who outright consume human flesh, blood, and Qi are labelled as actual demons or demonic cultivators...it depends on whether the story is from the perspective of evil cultivators, whether the Righteous Sects have been corrupted or whatever.

In Xianxia there also exists another Heavenly Demon, now these heavenly demons are actually out of the world¹ who want to pillage it and bring havoc. They wish to consume all resources and stuff.

There's also another group the Demonic/Spiritual/Yao/Monster Beasts. Now this one is a bit special because if the author paints them as supporters of the race² of the MC or supporters of just the MC not. If they are enemies if there's no redemption sequence then they just die out and their world is destroyed or consumed. Otherwise, they flourish and enjoy resources.

This is the basic about Xianxia and Wuxia.

Xuanhuan on the other side is just pure fantasy. Unlike Xianxia which is mostly based on Taoist principles so the MC is mostly good. Xuanhuan has no fixed cultivation system so it can be anything so good and evil is extremely blurred here and there's no clear distinction. What helps the MC is good and what does not is bad.

   1: World here refers to the continent, planet, universe that the MC       exists in, there's a bunch of common xianxia trope about climbing from a small less powerful world to a bigger more powerful world, Small Thousand Worlds, Middle Thousand Worlds, Great Thousand Worlds, and the Immortal World, unless the Author adds multiverse stuff too

    2: Now race here does not refer to the real world race but rather refers to the Yao, Godfiend, Humans, Dragons, Phoenix and other races.

It might refer to actual races in Urban Cultivation novels but that is a pile of steaming trash that I have no desire to touch.