What exactly makes up a fairytale, and how do they differ from legends and folk tales? We shall go over a list of fairy tales, a comparison of legends and folk tales, and maybe come to an agreement.
The definition of a fairytale is "A Magic story which can not be true"(Linda Degh) which differentiates them from legends, which could very well be true. There are other basic characteristics of fairy tales which have similarities in common with most cultures:
First, you will need an undefined time and place. "Once upon a time, long ago in a far away place" is about as vague as you can get. You know that it took place no where near the here and now, and that, my friends, leaves the door wide open for anything to happen. This, in fairytales, often does.
Next you will need characters that have no need to develop. Cinderella has one good night, but you never find out how it ends, except that they live "Happily ever after." She never does learn to stand up to her evil stepsisters; she simply marries a prince and moves away. So does Snow White, Sleeping Beauty and the chick in the tower with the long hair.
In legends, however, the protagonist has the ability to change their outlook on life. In the legend of Rip VanWinkle, Rip sleeps for a thousand years and awakes to find all that he has loved gone. He gets another chance, and never takes his life for granted again, choosing to live instead of being lazy and sleeping all the time.
Which brings us to the transformation; there must be a transformation. Cinderella is transformed into a princess; the frog is transformed into a prince, the beast is transformed into a man. They can be under a spell which was cast by a villain, or brought on by their own selfish behavior (as in Beauty and the Beast, wherein the lord of the house was unkind to an old woman who asked for his help.)
And of course, some kind of magic has to take place. A magic coach, broomstick, a wish made possible by a fairy, the kiss of a handsome prince.
It gets even better; a folk tale is considered to be largely oral tradition, handed down by word of mouth, whereas a fairytale is considered literary; written down with much more scenery and depth than the oral tradition. Legends can be both, and there is a very blurry line between them all.
More importantly, it needs to be pointed out that the fairy tale story as we know it today was not necessarily meant for children. Read "The Annotated Mother Goose" (Not actual fairy tales, but the grisly truth behind the nursery rhymes) or the original Grimms Fairy tales and you'll see what I mean. Red Riding Hood gets eaten, as does most everyone else in the story, The Little Mermaid dies because she is, after all, a fish, and Hansel and Gretel get thrown into the oven. Not exactly stories about a beautiful fairy that is cute and helpful. These were cautionary tales meant to remind you to listen to your mother and not stray from the path, don't try to be something you're not, and don't trust old ladies who live in a house made from sugar.