h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

what about Jung, Campbell (Hero of a thousand faces) and various other mythographers? Also many people still believe in Fairies and a Freudian explanation can get them angrier than an angry beaver

Then there are the theories that they are the echoes of ancient Gods - for example the word Leprechaun some argue comes from a derivation in Gaelic of the ancient Celtic God Lugh.
The Tuatha de Danaan (Children of Dana), of which Lugh is one, are probably the inspiration for many of the Irish fairy tales.
Of course the Christian priests took a dim view of worshipping ancient God's and so the stories of the ancient Gods were reduced to Fairy tales.

Please see http://www.belinus.co.uk/folklore/Homeextra.htm

This entry will start people talking/thinking/arguing.

How about this - fairies originated as man saw new natural creatures, but imagined human features, particularly if it was along time between seeing and reporting. Then the story was embroidered with the telling. If any nation was excelled at story-telling, it would be the Irish, wouldn't it?

On the other hand, if you heard sounds at night that you didn't hear during the day you might be scared. Surely it's better to invent a source for the sound that was less scary that that imagined?