Differences between fantasy and folklore

Modern fantasy has big inspirations from fairytales and folklore, but they differ in three aspects.

Modern genre fantasy is set in a different reality, either a fantasy world separated from ours, or a hidden fantasy side of our own world. In addition, the rules, geography, history, etc. of this world tend to be defined, even if they are not described outright. Traditional fantastic tales take place in our world, often in the past or in far off, unknown places. It seldom describes the place or the time with any precision, often saying simply that it happened "long ago and far away."

The second difference is that the supernatural in fantasy is by design fictitious. In traditional tales the degree to which the author considered the supernatural to be real can span the spectrum from legends taken as reality to myths understood as describing in understandable terms more complicated reality, to late, intentionally-fictitious literary works.

Finally, the fantastic worlds of modern fantasy are created by an author or group of authors, often using traditional elements, but usually in a novel arrangement and with an individual interpretation.^[1] Traditional tales with fantasy elements used familiar myths and folklore, and any differences from tradition were considered variations on a theme; the traditional tales were never intended to be separate from the local supernatural folklore. Transitions between the traditional and modern modes of fantastic literature are evident in early Gothic novels, the ghost stories in vogue in the 19th century, and Romantic novels, all of which used extensively traditional fantastic motifs, but subjected them to authors' concepts.

So modern Fantasy examples would be:

Lord of the Rings
Harry Potter
The Witcher

that is pretty clear, but the lines get blurry when you start looking at old fantasy.

Alice in Wonderland
Peter Pan
The Wonderful Wizard of Oz

All don't count as fairy tales, but fantasy novels. The big difference here falls in the last point, novels are made by singular imagination. Fairy tales have been changed and told over time and are more a part of culture. "But then how are there fairy tale writers?" I hear you say. Well, fairy tale writers don't actually write them, they are collectors. Collecting stories they hear and writing them down, once again changing it accidentally to be interpretation or on purpose to give a signature style.