One of the challenges in understanding the Norse and Germanic material is that many different Otherworldly beings are translated into English as "elves", just as many different Irish beings are called fairies. The Norse word Alfar appears in German as Alp or Elb, and English as Elf, while in modern Icelandic they are known as both alfar and Huldufolk (hidden folk), although Huldufolk is also used as a generic term, like elf, that can describe alfar, trolls and land spiritis. Landwights are also sometimes conflated with the alfar, because the two have many commonalities, but also key differences that indicate they actually are separate types of beings (Gundarsson, 2007). The modern view of elves as tiny laborers is vastly at odds with the traditional view of the Alfar as tall, beautiful, and powerful beings. If you are familiar with Tolkein's elves then you have some idea of the older view of the alfar.
The alfar were created when the Gods created the world and in Norse myth one of the 9 worlds belongs to them: Ljossalfheim (Light Elf Home). Properly there are at least three groups referred to as alfar in Norse myth: the Ljossalfar (light elves), svartalfar (literally black elves; dwarves), and drokkalfar (literally dark elves; mound dead), although it is difficult to know with certainty if these were originally seen as different beings altogether which were all later simply called alfar for convenience, or if they were always seen as related beings. Jacob Grimm tried, in his Teutonic Mythology, to to make a literal division of the groups by color, so that the ljossalfar were white, the svartalfar black and the drokkalfar grey, but this is almost certainly his own invention (Grimm, 1883). I think it is more likely, personally, that alfar was sometimes used as a term to describe supernatural beings who were neither Gods nor giants and so could be used in a more general sense, as well as specifically with the ljossalfar probably being the original beings under that name. In the lore however we do see beings referred to as alfar at one point and elsewhere as other types of beings, including gods or giants, so it can be difficult to have any real clarity on this (exactly like the Irish material). There is some clear distinction between the ljossalfar, the more traditionally understood Otherworldly elves, and the drokkalfar, who are understood to be the mound-dead, but there is also significant crossover as well which may indicate an understood connection between the two groups (Gundarsson, 2007).
The alfar are known to interbreed with the other beings, particularly humans, and some mythic heroes and kings (as well as the king's half sister in the Saga of King Hrolf Kraki) were said to be half-elven. Icelandic patronyms sometimes show this possible ancestral connection (Gundarsson, 2007). This may reflect the common belief that the birthrate among the elves is low or that females are rare; a common theme in mythology is the stealing of brides and babies or of midwives to help at births. In the older Norse material Alfar always appear to be male, although in later Icelandic folklore we see females as well, and in the Swedish material we mainly see alf women (Gundarsson, 2007).
Alfar are associated with their own world, ljossalfheim, of course, but are also believed to live in or access our world through natural sites including mountains, cliffs, and boulders. They are known to be associated with certain places, and particularly certain individual trees, and it is believed that to disturb the places belonging to the Hidden Folk is very bad luck (Gundarsson, 2007). As recently as October 2013 protesters in Iceland were trying to block a highway project on the grounds that the construction passed through an area belonging to the alfar, who would be angered (Scherker, 2013). It is believed by many that disturbing the alfar with construction will result in bad luck and machines breaking down and often a special person who is known to be able to see and communicate with the elves will be brought in to negotiate (Gruber, 2007). Those who are brave enough to enter an alf-hill or visit the realm of the alfar may find that time moves very differently there, and sometimes the alfar will not release those who who have gone among them.
In folklore the Alfar are seen as being especially active during the 12 days of yule and at midsummer. Gundrasson suggests - and I have long agreed - that the summer activities of the alfar, while still potentially perilous to humans, are less dangerous in nature and intent than the Yule activities (Gundarsson, 2007). The alfar ride out in full procession at midsummer and Yule, an activity which may convey blessing on the areas they pass through, but in Iceland the Yule ride of the alfar, the alfarieth, is equated to the Wild Hunt and is extremely dangerous to see or contact (Gundarsson, 2007).
Interacting with the alfar is always a tricky business, as they can give blessings or lay curses on a person. In many traditional tales those who encounter elves and please them - often with good manners and generosity - may receive gifts, but those who offend them are killed or driven mad. When offered a gift from the alfar one should not refuse, and these gifts might include food, drink, or worthless things like leaves which will later turn to gold (Gundarsson, 2007). The alfar can also heal illnesses and injuries, if properly petitioned, and can be called on with a specific ceremony to protect a baby (Gundarsson, 2007).
The alfar are angered by several types of human activity including the aforementioned disturbance of their places. They are also driven out of an area by the placing of an alfreka or by people urinating on the ground (Pennick, 1993; Gundarsson, 2007). When angered they can cause bad luck, sickness, madness, or death. Elves were also thought to be able to inflict illness on humans through the use of alf-shot or an elf-blast, the first being a small, invisible arrow that created diseases including bone cancer and arthritis, the second being a method where the elves would breath or blow sickness into a person. There are several surviving charms aimed at curing alfshot (Gundarsson, 2007). There is also a reference in older material to "alf-seidhr" possibly a type of magic worked by the alfar against humans to cause madness and death (Gundarsson, 2007).
In Norse lore iron and steel are used as a protection against dangerous alfar and other spirits, although it is not effective against giants (Gundarsson, 2007). Any item made of this metal may be used, but traditionally bladed weapons and nails were the most commonly seen, and iron or steel nails might be hammered into a post or doorway to protect a home. Sulfur, rowan, and juniper are also traditional Norse protections, as well as a blend of woody nightshade, orchid and tree sap which was said to protect against the "unwanted attentions" of the huldufolk (Gundarsson, 2007). It is also said that church bells ringing will drive off the alfar, as will Christian prayers, although this may perhaps represent more of a reaction by the alfar to a religion which offends them than a sign of any power that faith actually has over them.
Traditionally offerings have long been made to the alfar to secure their blessing and for prosperous crops and peace. As Jacob Grimm tells us: "The hill of the elves, like the altar of a god, is to be reddened with the blood of a slaughtered bull, and of the animal's flesh a feast prepared for the elves... [a]n actual âlfabôt." (Grimm, 1883). The alfablot, or ritual offering to the elves, was a practice throughout the Norse lands that occurred roughly at the end of the harvest season and was celebrated by the entire family unit (Gundarsson, 2007). Offerings to the alfar traditionally included milk, ale, silver, and crafted metal; where large, earthbound boulders were found with natural depressions in them offerings of milk were made into the hollow in the stone for the alfar (Gundarsson, 2007).
In a modern context it would be wise for Heathens to remember to honor the alfar, with blots and offerings. The alfar are closer to us and our world and effect us more often than the Gods generally do, and they should be respected. It is also a good idea to understand how the alfar can effect us, for good and ill, and ways to best deal with them.
References and Further reading:
Grimm, J., (1883) Grimm's Teutonic Mythology http://www.northvegr.org/secondary%20sources/mythology/grimms%20teutonic%20mythology/01701.html
Jolly, K (1996). Popular Religion in Late Saxon England: Elf Charms in Context
Lindow, J (2002). Norse Mythology: A Guide to the Gods, Heroes, Rituals, and Beliefs.
Our Troth, vol. 1 (2006)
Gundarsson, K., (2007). Elves, Wights, and Trolls
Scherker, A (2013) Protecting Elves from Highway Construction is a Thing in Iceland http://www.huffingtonpost.com/2013/10/31/iceland-elves-construction_n_4178150.html
Pennick, N., (1993). Runic Magic: the history and practice of ancient runic traditions
Soderlind, R., (2013) Elves in Modern Iceland. Retrived from http://www.ismennt.is/vefir/ari/alfar/alandslag/aelvesmod.htm
Gruber, B., (2007) Iceland: Searching for Elves and Hidden People http://www.dw.de/iceland-searching-for-elves-and-hidden-people/a-2786922
Bedell, J. (2006). Hildur Queen of the Elves and Other Icelandic Legends