I love mythology and folklore. I find it fascinating. I don't believe any of it, though it would be awesome if creatures of folklore did exist.
But really, folklore, like religion, is just how we explained things before we developed the scientific method to see what was really going on. Think about it: right now, if you go for a walk at night, there are street lights, building lights, public transport, etc. But imagine just a few hundred years ago, when people would return home after a night at the pub. No street lights, nothing. Pitch black darkness. We all know our imaginations run wild in the dark. Imagine tripping over a log, maybe you're a bit intoxicated, maybe not. You just know something tripped you, maybe you hear animal noises nearby. I bet creatures like goblins, gnomes, elves, etc. arose from circumstances just like that.