In order to define "La Belle Dame sans Merci" as a ballad, we must first explore what a ballad is. There are many definitions out there (some of them getting quite specific), but a good, general definition is "a songlike poem that tells a story." Ballads are especially meant to be either sung or recited and often contain adventures in romance.
Because a ballad is often "songlike" and, in fact, meant to be sung or recited, there must be some musical quality about "La Belle Dame sans Merci." Namely its rhyme, rhythm, and repetition. For example, "La Belle Dame sans Merci" has a definite rhyme scheme of abcb. Each stanza is the same in that way. Let's take the first and last stanzas as examples:
O WHAT can ail thee, knight-at-arms,
Alone and palely loitering?
The sedge has wither’d from the lake,
And no birds sing. ...
And this is why I sojourn here,
Alone and palely loitering,
Though the sedge is wither’d from the lake,
And no birds sing.
Note the abcb rhyme scheme as well as the repetition of "Alone and palely loitering" as well as "And no birds sing." Further, the rhythm of iambic tetrameter (with the departure from that meter in the last line of each stanza for emphasis), gives a very rhythmical quality to this poem.
In regards to some of the more specific definitions of ballad, I find eNotes explanation very interesting:
[A ballad] tends to have a tight dramatic structure that sometimes omits all preliminary material, all exposition and description, even all motivation, to focus on the climactic scene, ... moving to its conclusion by the means of dialogue and a series of incidences.
Even with a specific directive such as this, "La Belle Dame sans Merci" doesn't disappoint! (See below.) It also leads nicely into the discussion of the storytelling aspect of this very definite ballad.
An adventure in romance? I think SO! It is a fairly dramatic story of unrequited love, for sure! A knight falls in love. He sets her on his steed. They admit their love for each other before she sets her knight asleep to a horrid dream. Waking up alone and unloved. So sad! Note the lack of exposition as to how the two got to this point of love. Also note the lack of description leading us to the characterization of a very mysterious and ethereal maiden.
Taking the more involved definition above into account, notice how dialogue is, in fact, used in the second half of the poem with the maiden proclaiming, "I love the true!" and the knight proclaiming, "La Belle Dame sans Merci / Hath thee in thrall!" Note the dramatic difference of punctuation! Truly both seduced and left alone by a mysterious, fairylike maiden. Hence, "The Beautiful Lady without Pity" or perhaps "The Lovely Lady without Mercy." Ha!