It is immensely difficult to define and differentiate between the magical beings presented in Germanic lore. Giants beget gods, dwarfs become dragons and the dead transform into elves, presenting a complex and oft complicated picture of the beings that they believed inhabited the cosmos.
So what are elves and how do they fit into the belief system of the elder heathen?
In Anglo-Saxon lore, elves are typically depicted as being malevolent creatures, able to cause illness and pain to both humans and livestock. The Old English corpus is well stocked with compound words associated with Elves, that may give us a clearer picture of these otherworldly beings.
Ælfādl– Elf disease
Ælfsiden– Under the influence of elves or evil spirits, a nightmare
Ælfsogoða– A disease ascribed to the influence of elves, a type of demonic possession
Belief in elves as beings of malefic intent is further illustrated by the apparent need to cure ailments inflicted by them . Remedies for elf-related illness appear in Bald’s Leechbook, Leechbook II and in the Lacnunga Manuscript. The metrical charm, Wið færstice is probably the most famous surviving mention of elves found within English lore.
“Loud were they–oh! loud, When they rode over the hill;
single-minded they were when they rode over the land.
Shield yourself now: this evil, will be able to survive.
Out, little spear, if you are here within,
I stood under a linden-wood shield, under a light shield,
where those mighty women arrayed their forcesand screaming they sent spears.
To another of them I intend to send in turn a flying spear back against them.
Out, little spear, if it is here within.
A smith sat, forged a little saxiron weapon, exceedingly wonderful.
Out, little spear, if you are here within.
Six smiths sat, making deadly spears.
Out, little spear, not in, spear.
If you are here within piece of iron,
or shot in flesh or shot in blood
the work of a witch, it shall melt.
If you were shot in the skin,
or were shot in the body
or were shot in the bone
or were shot in the blood,
or were shot in a limb,
never would your life be harmed;
if it were shot of evil spirits,
or if it were shot of elves,
or if it were shot of a witch,
I will help you now.
This is a remedy to you for a shot of evil spirits,
this is a remedy to you for a shot of elves,
this is a remedy to you for a shot of a witch;
I will help you.
Fly there spear into the mountain top.
You be healthy,
may God help you.
Then take that sax,
put into the liquid.”
The belief in ‘Elf-shot’ was so prevalent in English superstition that it survived well into the modern era. Wuthering Heights , published in 1847, makes reference to ‘elf bolts’, depicting them much in the same way Wið færstice had over 800 years earlier.
‘Ah! Nelly has played traitor,’ she exclaimed, passionately. ‘Nelly is my hidden enemy. You witch! So you do seek elf-bolts to hurt us! Let me go, and I’ll make her rue! I’ll make her howl a recantation!’
It’s clear elves were seen as powerful creatures, akin to witches or evil spirits, though not all references to them were negative. The word ‘elf’ was used as a first element in a number of Germanic given names including; Ælfric ‘Elf-powerful’, Ælfwine ‘Elf-Friend’, Ælfweard ‘Elf-Guardian’ and survives to this day in the name Alfred.
Other Old English words depicted them as being radiant and beautiful. The word Ælfscīene or ‘elfen beauty’ seems to challenge the assertion that elves were simply malevolent spirits who caused back spasms and migraines. Perhaps the reason negative connotations were attached to elves was due to rise of Christianity.
Elves appear frequently throughout the Eddas, where they often overlap the gods and dwarfs. The Vanir in particular have strong ties to the elves through Freyr, who is said to rule over Alfheimr, the land of the elves. Simek postulated that the Vanir and Alfar were virtually indistinguishable and could have have been one and the same.
One of the tales in Konunga Sǫgur, tells of a Swedish king who is venerated after his death and becomes an elf or demi-god.
“Olaf had instructed his people to build a howe and lay him to rest inside, forbidding them to worship him after his death seeking propitious boon. But as Olaf suspected, once the next famine arrived, “they resorted to the plan of sacrificing to King Olaf for plenty, and they called him Geirstaðaálfr”. 
The story of King Olaf is echoed in other Germanic tales, where sacral kings and ancestors of renown were demi-deified within their barrows, becoming something more than they had been in life. These barrows would in turn become cult sites, where those who came to make offering could share in the luck of the barrow-dead. It also appears that Ingui (Freyr) was seen as the deity that had dominion over those deceased ancestors who were bound to Middangeard, the elves.
Freyr is once again attached to barrow-dead in Gísla saga.
“And now, too, a thing happened which seemed strange and new. No snow lodged on the south side of Thorgrim’s howe, nor did it freeze there. And men guessed it was because Thorgrim had been so dear to Frey for his worship’s sake that the god would not suffer the frost to come between them.”
It’s the opinion of the Lārhūs that Elves were essentially demi-deified ancestors, heroic figures who attained divine status after death. These elves were still at least partially tethered to the earth and in turn connected to Ingui, who in Ynglinga Saga 13 was referred to as ‘the god of this world.’ Ingui was seen as the divine ancestor of the Ingaevonic people, the people who would later become the English. It doesn’t seem a massive stretch to assume the elder heathen may have believed Ingui continued to supervise those of his kin who became ancestors themselves. It is also possible that Alfheimr was not altogether separate from Middangeard (earth), but instead represented the ghostly world of the barrow-dead within Middangeard. A parallel, yet invisible world overlapping our own which was hidden, yet still tangible. A place from which the ancestral dead were able to influence the living in both negative and positive ways.
Simek 2010; Hall 27, 35-37; Frog and Roper 2011
Davidson 1943 p.101 : citing Flateyjarbók: Óláfs Saga Helga