When it comes to functionality and style of the bath space, recessed lighting is a good choice. It helps create an area where it's easy to relax and unwind. It also adds a clean, modern look that blends into the architecture and bath space.

Recessed bath lights can be installed over tub areas or in shower stalls, which can't be done with regular wall or ceiling mounted light fixtures. ~Scott

You get different illumination effects from ceiling-mounted or recessed lights vs. above mirror wall-mounted or lights beside the mirror.

Ceiling or recessed lighting is for general illumination of the area.

Vanity wall mounted lights over a mirror or on the sides of it is to have bright and shadowless facial illumination during shaving, or when applying make-up, etc. because the main concern is to eliminate shadows on your face.

If you concerned with a reflection effect from the tile instead of your face you can put lights anywhere you want.

Does a combination of recessed lighting and vanity wall mounted light work best then? As far as recessed lighting goes - is the trend to have lighting installed right above the shower and bathtub areas?

There is no "trend" to have lighting in the shower or bathtub area, it all comes down to a personal choice, the look you after and how much light you need and where.

If there is a toilet near the shower/tub most people prefer a fan with a light over the toilet for reading rather than have a shower/tub area illuminated.

Some people if they shave in the shower, etc they plan to have a "fogless" mirror there for whatever reason they prefer to have shower/tub area illuminated.

When dealing with smaller bathrooms one light over the vanity would illuminate the entire bathroom.

It's all about personal choice.