While attending the World Fantasy Convention, I learned more about the role of small press publishing and its impact on the literary world. I know writers that have works published through small press and have personally sat in on more than one panel discussion on the subject. This is a high level overview of my thoughts and observations.
Small press publications refer to those who are basically publishing material at a smaller volume than the large publishing houses. For example, a new novel may be published a few thousand times by small press but twenty thousand times by large press. The larger markets have a greater financial investment in their projects. (Of course, considering the relative scale of available capital to both large and small press, I wonder if there is the same degree of risk on new projects for both.)
The small press cannot pay at the same rate as the larger publishing houses, and it is for this reason that some writers who find success in the small markets pursue the greater financial payouts of the larger markets. Certainly the idea of fame and fortune appeals to many, but small markets offer authors the opportunity to find publication on projects large markets would pass on. Experimental, niche, risky ideas pour forth from the small press; these are risks they are willing to take if the stories move them.
Some people enjoy working for small companies while others stick with corporations. There is no right and wrong, better and worse. The literary world reflects this as well. If you have a finished work, consider each market carefully and then decide based on what fits you.
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