Folk beliefs
One popular belief was that they were the dead, or some subclass of the dead. The Irish banshee (Irish Gaelic bean sí or Scottish Gaelic bean shìth, which both mean "fairy woman") is sometimes described as a ghost.The Scottish Cauld Lad of Hylton, though described as a murdered boy, is also described as a household sprite, like a brownie. 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. 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.

Some hold that the Catholic concept of Purgatory was an invention to appease converts who believed "The Land of Fae" was the home of the souls of the dead, said realm being co-existent with, but separate from, the world of the living and which could only be seen by those gifted with an ability known as the "second sight".

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

A third belief held that they were a class of "demoted" angels.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. Others held that they had been thrown out of heaven, not being good enough, but they were not evil enough for hell.This may explain the tradition that they had to pay a "teind" or tithe to Hell.
 

Legend of Faires (cont)

As fallen angels, though not quite devils, they could be seen as subject of the Devil.A fourth belief was the fairies were devils entirely.  The belief in their angelic nature was less common than that they were the dead, but still found popularity, especially in Theosophist circles. Informants who described their nature sometimes held aspects of both the third and the fourth view, or observed that the matter was disputed.

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.

A story of the origin of fairies appears in the 1906 James Barrie novella Peter Pan in Kensington Gardens, an earlier version of the novel Peter Pan and Wendy. 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."

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 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."