Elves, Part One: The Origins of Elves in Norse Mythology
Elves are first and foremost beings of Germanic/Norse mythology, which were later (much later) incorporated into English/Irish myths after the Viking culture had been established in the British Isles for some time.
In Norse mythology, the universe is divided into 3 levels. On the first/top level, is Asgard, the realm of the Aesir (warrior gods). Here is also found Valhalla, the huge hall that houses the Einherjar (the dead warriors await Ragnarok). Also on this level is Vanaheim, where all the Vanir (fertility gods) lived until they eventually united with Aesir. And finally, here is also Alfheim, the land of the light elves.
One of the best resources for Norse mythology is Teutonic Mythology by Jacob Grimm. Of course, Jacob Grimm is best known now for the fairy tales and folklore that he and his brother Wilhelm collected, but Jacob Grimm was best known in his own time as an expert in Germanic linguistics and mythology. In his study, Grimm only devotes a few paragraphs to elves. They were mentioned often in Norse and Germanic mythology, but rarely beyond some name-dropping, so there is very little detail to go on. In any case, Grimm offers the following information:
The Poetic Edda (one of the great Old Norse texts) often couples the Aesir (gods) and the Alfar (elves) together as if they were equal (or nearly so) higher beings. Likewise, in the Hrafnagaldr (an Icelandic poem similar in style to the Poetic Edda) opens with the words: “Alfodr orkar, alfar skilja, vanir vita” which means roughly “All-father (which is probably a refernce to Odin, leader of the Aesir) has power, Alfar (elves) have skill, Vanir have knowledge.” This would indicate that the elves, while perhaps not the same as the Aesir, were divine in nature and were possibly respected for their skill (though stkill in what, precisely, is unknown).