We can only make guesses about the origins of our fairies. I've heard all kinds of notions; that they're cultural memories of earlier people defeated by iron-using immigrants, the souls of unbaptised pagan people, and of course, that they're the gods of our ancestors, either incorporated into modern beliefs but changed into wilderness spirits or, if you'd prefer, actually there as they've always been, we just don't worship them any more.
Of course, we don't know how fairy beliefs in England or the British Isles connects with similar beliefs elsewhere. We sometimes view fairies as nature spirits, yet it seems clear that by the medieval period we'd adopted much of the Scandinavian idea of elves being in a kind of parallel reality, with towns and palaces, even more splendid than anything in the human world. But there were also Scandinavian beliefs in supernatural beings inhabiting the wilds. How much of what we have left is indigenous to, or at least derived from the cultures of the earliest modern human inhabitants of, the British Isles? My guess is, little. How much can we associate our spirits of the wilderness with those occurring in other cultures? Are they all different interpretations of the same kinds of human experiences?
The way I see it, is that people see things they don't understand in wild places. Ape-men are still reported, after all. And people find their gods in those places near enough to have influence on their lives but which still hold mystery. It wouldn't surprise me if, before the deities living in sky palaces or on mountain tops grew to prominence, when folk still lived with woods and forests all around, they would feel enough disquiet in the landscape around them to call upon those mysterious forces. Perhaps we remember at least a glimmer of that today, albeit much altered, and we remember our earliest steps in explaining a perplexing world in the shape of our current view of wee winged folk, or the human looking elves of northern lands, or satyrs and the like.
All that, and also fairies are real. (I don't wish to anger the fae.)