Elfhame or Elphame
The home of the elves, fairies or síde (pron. shee). Note that we are not talking about tiny (bee or butterfly-sized) creatures that flit from flower to flower, but of 'people' of almost human stature. They were considered beautiful. In Beowulf, a woman is described as "as brightly beautiful as an elf": the English 'elf', Anglo-Saxon 'aelf', is cognate with the Latin 'albus', meaning white, bright - like the snow covered Alps. They were also considered wise. The name Alfred (as in Alfred the Great) means wise as an elf.
But who are - or were - these 'people', these folk?
According to F. Marian McNeill, in The Silver Bough Vol 1: Scottish Folklore and Folk Belief, there are two theories. First, that they are a folk-memory of an aboriginal race, "little men who lived in green mounds" in small communities, each with its own 'queen'. Their beehive houses, sunk partly in the ground and roofed with turf, looked like hillocks. They grew no crops and, though skilled with bronze, had a horror of iron. Their characteristic weapon was the saighead shith, the flint 'elf-bolt'. They were skilled musicians - many old Scottish songs are said to derive from them - and masters of magic: the shamans and witches among their persecutors, the Celts, used to consult them as their superiors in the magic arts. They are last heard of living apart in Caithness in the eighteenth century.
The second theory is that they are non-human nature spirits living in the invisible world which is immanent in the visible world. They can be glimpsed by those with the Sight (Second Sight). This second theory could easily be later than the first, and what people came to believe as elves and fairies grew rarer and rarer and were less and less frequently sighted.
Brian Bates, in The Real Middle Earth (reviewed on this site), gets the best of both theories perhaps by saying that they were not so much paranormal phenomena as "normal, but usually invisible".
For an encyclopedic view of the whole subject, though, Carol Rose's Giants, Monsters and Dragons: An Encyclopedia of Folklore, Legend, and Myth and her Spirits, Fairies, Leprechauns and Goblins: An Encyclopedia, cannot be bettered.
Elfhame or Elphame itself (otherwise known as Tir-nan-Og or Avalon, or simply as the Land of Faërie or Fairyland) became finally a subterranean land entered through a cave or an opening in a hill, to which the Queen of Elfhame or Faërie, mounted on her milk-white steed, carried off those mortals on whom she had cast her spell, or glamour. Such a one was Thomas the Rhymer or True Thomas (Druid ? Thomas), a thirteenth-century poet and seer:
True Thomas lay on Huntlie Bank;
A ferlie spied he wi' his e'e;
And there he saw a ladye bricht
Come riding doun by the Eildon Tree.
Her skirt was o' the grass-green silk,
Her mantle o' the velvet fyne;
At ilk tett o' her horse's mane
Hung fifty siller bells and nine.
..........
'Harp and carp, Thomas,' she said;
'Harp and carp alang wi' me;
And if ye daur to kiss my lips,
Sure o' your body I will be.'
'Betide me weel, betide me woe,
That weird sall never daunton me.'
Syne he has kissed her rosy lips,
All underneath the Eildon Tree.
She took him on her milk-white steed and carried him off to Elfhame, and
till seven years were come and gane
True Thomas on earth was never seen.
It is interesting that in the Norse myths there are two races of gods, one of which, the Vanir, includes Frey and his sister Freya, the god and goddess of fruitfulness, who seem to be the King and Queen of the Elves, if not actually elves themselves. The Norse myths also speak of another group, the so-called night elves; these, however, were ugly creatures, not true elves but dwarfs and trolls. The peerie folks or elves of the far north of Britain (the Norse area) were also commonly seen as ugly or malevolent, in contrast to the fairies or elves, little folk with golden hair, of Gaelic Ross and Inverness and Perth. For more on trolls and peerie folk, consult The Folklore of Orkney and Shetland by Ernest W. Marwick.