A vanity gallery is an art gallery that "rents" its space to artists in order for the artist to have a show. Thus, the main driver in having a show at a vanity gallery is not necessarily the quality of the artwork, but the artist's ability to pay the gallery to host his/her artwork.
New York is crawling with vanity galleries, and the vast majority of European galleries are vanity galleries. In the US however, vanity galleries are often looked down upon by everyone, since they are essentially a "rental" gallery. A knowledgeable art critic or curator knows which galleries in his/her town are vanity galleries, and often ignore them, much like book critics ignore most self-published writers, who use "vanity publishers."
An interesting fact, at least here in Washington, DC, is the fact that (being on the inside), we often see "reputable" galleries which sometimes cross the line and become "charge the artist" galleries or vanity galleries once in a while, as the mighty dollar calls.
Sometimes we'll get a phone call from an embassy, or from the agent of a Hollywood actor who's also a "painter" or "photographer," and they'll ask us how much would we charge to host a show by their "artist."
When we inform them that we do not rent the gallery for artists to have shows, they thank us and hang up. Then a few months later we see that "Hollywood artist" or "embassy artist" exhibiting in one of our local "reputable" art galleries, and immediately recognize that - at least for that month - that gallery is making ends meet by renting the space to someone while pretending that it is part of their regular schedule.
While I understand that most galleries are labors of love, and often run by the skin of one's teeth, I still find it somewhat distasteful, and dishonest - to appear (on the surface) to be a gallery that shows work based on merit, while at the same time showing work based on an artist, or a corporation's ability to pay.