I read this back when it was posted, was kept intrigued, and quickly drew the conclusion the villagers did (it was the puppeteer! Strange and magical!) though slowly grew to realize that no, it wasn't.
Also, No Man.
Regarding fairy tales, the old fashioned sort of fairy tales, the key is words are 'capricious' and 'unique'. <snip> So keep your door barred and your children close, don't follow the lights in the woods, don't go too deep in the swamp, and never ever trust the old hermit.
But always give the roadside crone your food generously, and neglect to invite all the fey at your peril- capriciousness is two-sided, after all.
As for faerie tales, I'm of a few minds on this subject- for the more classic fey, there's simply the retreat from iron, and possibly the separate Elf-land (There are better words for this, but none come to mind at the moment.)
For dragons, there's genocide as St. George.
Yet, this need not be true on all worlds..I can see a land of volcanoes where dragons rule the lands, or a heavily forested realm where even Elves fear the wild thickets.
And certain fairy tales are perhaps properly faded legends of ancient people, with ghosts or even just empowered beliefs, possibly the ghost of the original Bluebeard, possibly just a malevolent spirit who likes tempting and tormenting and killing fair maids.
Where else did fairy tales come up? Oh yeah,
unicorn thread.