Elves and Fairies

Dead
One popular belief was that they were the dead, or some subclass of the dead.[13] The Irish banshee (Irish Gaelic bean sí or Scottish Gaelic bean shìth, which both mean "fairy woman") is sometimes described as a ghost.[14] The northern English Cauld Lad of Hylton, though described as a murdered boy, is also described as a household sprite like a brownie,[15] much of the time a Barghest or Elf.[16] One tale recounted a man caught by the fairies, who found that whenever he looked steadily at one, the fairy was a dead neighbor of his.[17] This was among the most common views expressed by those who believed in fairies, although many of the informants would express the view with some doubts.[18]

Elementals
Another view held that the fairies were an intelligent species, distinct from humans and angels.[19] In alchemy in particular they were regarded as elementals, such as gnomes and sylphs, as described by Paracelsus.[20] This is uncommon in folklore, but accounts describing the fairies as "spirits of the air" have been found popularly.[21]

Demoted angels
A third belief held that they were a class of "demoted" angels.[22] One popular story held that when the angels revolted, God ordered the gates shut; those still in heaven remained angels, those in hell became devils, and those caught in between became fairies.[23] Others held that they had been thrown out of heaven, not being good enough, but they were not evil enough for hell.[24] This may explain the tradition that they had to pay a "teind" or tithe to Hell. As fallen angels, though not quite devils, they could be seen as subject of the Devil.[25] For a similar concept in Persian mythology, see Peri.

Demons
A fourth belief was the fairies were demons entirely.[26] This belief became much more popular with the growth of Puritanism.[27] The hobgoblin, once a friendly household spirit, became a wicked goblin.[28] Dealing with fairies was in some cases considered a form of witchcraft and punished as such in this era.<sup class="reference" id="cite_ref-Briggs409.E2.80.9312_28-0">[29] Disassociating himself from such evils may be why Oberon, in A Midsummer Night's Dream, carefully observed that neither he nor his court feared the church bells.<sup class="reference" id="cite_ref-29">[30]

The belief in their angelic nature was less common than that they were the dead, but still found popularity, especially in Theosophist circles.<sup class="reference" id="cite_ref-Briggs67-143-7_30-0">[31] <sup class="reference" id="cite_ref-Evans-Wentz_31-0">[32] Informants who described their nature sometimes held aspects of both the third and the fourth view, or observed that the matter was disputed.<sup class="reference" id="cite_ref-Briggs67-143-7_30-1">[31]

Humans
A less-common belief was that the fairies were actually humans; one folktale recounts how a woman had hidden some of her children from God, and then looked for them in vain, because they had become the hidden people, the fairies. This is parallel to a more developed tale, of the origin of the Scandinavian huldra.<sup class="reference" id="cite_ref-Briggs67-143-7_30-2">[31]

Babies' laughs
A story of the origin of fairies appears in a chapter about Peter Pan in J. M. Barrie's 1902 novel The Little White Bird, and was incorporated into his later works about the character. Barrie wrote, "When the first baby laughed for the first time, his laugh broke into a million pieces, and they all went skipping about. That was the beginning of fairies."<sup class="reference" id="cite_ref-32">[33]

Pagan deities
Many of the Irish tales of the Tuatha Dé Danann refer to these beings as fairies, though in more ancient times they were regarded as goddesses and gods. The Tuatha Dé Danann were spoken of as having come from islands in the north of the world or, in other sources, from the sky. After being defeated in a series of battles with other otherworldly beings, and then by the ancestors of the current Irish people, they were said to have withdrawn to the sídhe (fairy mounds), where they lived on in popular imagination as "fairies."<sup class="Template-Fact" style="white-space:nowrap;">[citation needed]

Excerpt from an online collection of Fairy Tales
THE ELVES DANCE - Sweden

UPON THE marshy oak and linden covered island of Sor, when the grass starts forth in the spring, are to be seen, here and there, circles of a deeper green than the surrounding grass, which the people say mark the places where Elves have had their ring dances.

While the provost, Lille Strale, was pastor of the parish church, a servant was sent out late one evening to bring a horse in from a pasture. Plodding along as best he could in the darkness, he had not gone far when it was discovered that he had lost his way, and, turn which way he would, he could not find the sought for meadow.

Exhausted at last by constant walking, he sat down at the foot of an oak to rest himself. Presently strains of lovely music reached his ears, and he saw, quite near, a multitude of little people engaged in a lively ring dance upon the sward. So light were their footsteps that the tops of the grass blades were scarcely moved.

In the middle of the ring stood the Elf Queen herself, taller and more beautiful than the others, with a golden crown upon her head and her clothes sparkling in the moonlight with gold and precious stones.

Beckoning to him, she said: "Come, Anders, and tread a dance with me!" and Anders, thinking it would be impolite not to comply with the request of a woman so beautiful, rose and stepped bowing into the ring.

Poor lad, he did not know what a fate awaited him who ventured to participate in the sports of the Elves. How the dance terminated is not known, but at its conclusion the young man found himself again under the oak, and from that hour he was never again wholly himself. From being the most lively and cheerful young man in the village, he became the dullest and most melancholy, and, before the year had gone, his days were ended.

Resources
Wikipedia article on Fairies

Scandanavian Folk and Fairy Tales

Travelocity Gnome

Elves from The Lord of the Rings (film)