While many fairies lived in glamorous courts, beautiful crystal castles, and on golden mountains, many others lived in squalor, refugees, hiding from both humanity and fairy kind. These fairy refugees were banished for a number of reasons from Wars to political rivalries, or simple jealousy.
In Denmark one small troll/dwarf like being was caught flirting with the king of the trolls wife. Thus he had to go into hiding, taking the form of a cat and living with a human family to avoid the kings wrath.
In Brittany one fairies clan was destroyed by another neighboring clan of fairies and was forced to hide in the form of birds (and they would grant wished to any human kind enough to feed them while they were in hiding)
On "The Isle of Man" a fairy danced with a human girl on a day sacred to the fairies, and so was banished by the fairy court to live among humans for the rest of time.
Often times the house fairies of Europe were fairies who'd been banished from the fairy court, forced to learn hard work by serving the humans until the humans saw fit to pay them, thus proving their worth. Other house fairies lived among the humans because they needed shelter.
In Ireland, and many other places it was believed that humans had at one time waged war on the fairies, a war which the fairies lost. Defeated the fairies were forced into hiding. Humans, after all, have many forms of magic to help them overcome the fairies. Humans can use salt and iron, magical symbols and words which drive the fairies away or destroy their magic. In other places, such as Japan, and even the Celtic lands, humans had the power of the evil eye and were impure, both of which weakened the power of the fairies. Thus fairies could only use their greatest spells when humans weren't looking at them. More than this humans could accidentally place a curse on a fairy with a simple look.
In Ireland the Tuatha De Danann were unable to defeat the Irish in a test of arms because of the Irish peoples’ powerful druids and deities. So now the fairies are forced reside in the hills and rocks of Ireland much as fairies do throughout Europe (Wentz, 1911).
“Pixies were often supposed to be the souls of the prehistoric dwellers of this country. As such, pixies were supposed to be getting smaller and smaller until, finally, they are to vanish entirely.” (Wentz, 1911)
This paints a much more terrifying picture of some of the fairies than we often imagined. According to this account, the pixies who people often think of as cute, little, playful fairies, are small because they are shrinking into oblivion. What’s more, they have had to live for thousands of years with the knowledge that they will eventually disappear and that those humans who will remain are the decedents of the people who forced them into their horrible fate. It is no wonder then that such beings are caught between human-like sympathy and incredible bitterness because, while they must retain some human emotion, much of this emotion must be anger at being driven into their current state.
Many fairies are starving and bedraggled, they dwell in squallier, some even live under human homes, in invisible huts in backyards or in even worse conditions such as where humans throw their garbage. “There is a widespread story of a fairy woman who begs a cottager not to throw water out at the doorstep, as it falls down her chimney. The request is invariably granted (Andrews, 1913).
Such fairies often create an illusionary world, a world filled with good food, yet they still depend on human food for their sustenance. They therefore steal bread, meat, fruit and more from humans.
It may even be that many wilderness fairies (such as brownies which can also haunt forests and pools of water) became house fairies because they no longer had anywhere else to go but still felt the moral need to continue working.
In fairy tales many fairies were ostracized, considered far less then human. This is shown clearly in one German tale where a King chases down a “Wild Little Dwarf” as if he were game. Later when the king complains that he didn't catch any animals that day his men assure him that; “there is not so good a sportsman as you to be found in the whole world. You must not, however, complain of our day's luck; for you have caught an animal, whose like was never before seen or heard of." (Desent & Anderson, 1906)
Fairies often returned this cruelty in kind in yet another German story some travelers come across a group of fairy like beings living in a cave, huddling around fires to keep warm. Here the fairies trap the humans and begin to use them for their meat, roasting them on spits. (Krauss, 1883) Yet the fairies must always remember that humans once defeated them, drove them into the caves and so humans can still destroy them with iron, the evil eye and magical symbols if we wish.
Still not all relationships between humans and fairy refugees were bad. A farmer who lived in Emserwald Germany had no friends or relatives nearby to stand as Godfather for his child so he entered the woods. Here he found a dwarf, who asked to take the role. The dwarf was very pleased to be asked but he was too poor to give much of a gift to the child. When searching the cave where he lived the dwarf found a coal-black root and told the farmer that if he was starving he should distribute a little of this root to each member of his family. Than one hard winter the family was starving and so they ate the root which put them into hibernation until spring when there was food in the forests again. The fairies gift in this case wasn't some treasure but a means to avoid starving to death by avoiding the problem (Jegerlehner, 1907).