The striking thing about fairy tales is not their dissimilarity to reality, but their resemblance to life as we know it. We don't fight dragons on our way to work (though we might when we're there) or find magic lamps when we need them, but existence has its ups and downs the same as any story about witches and Princes Charming, even if they're typically less magical. But the people we see in fairy tales are very much like the people we encounter every day, people we can relate to because they experience the same victories and defeats we do.
G.K. Chesterton says in Orthodoxy that a good story used to be about a hero among dragons, while in our modern age what is considered a good story is one about a dragon among dragons. It's true—today, most serious fiction is about lonely people struggling against existential angst in a dark world of cement and automobiles, a world devoid of beauty. Perhaps the great pull of fairy tales is that they aren't serious fiction, that their characters inhabit worlds of magic and wonder, that bad guys are identified by their pointy eyebrows and wicked grins, that eggs are made of gold and princesses have hair long as a castle tower.
But, some will object, this isn't consistent with what we know. Okay, we could respond, what of it? Why must our literature reflect exactly the world we live in, with its prosaic drudgery and numbing ambiguity? Why can't we have heroes who go to the moon on horseback and rescue fair damsels with a well-placed kiss and kill ogres in epic battles beneath enchanted trees? Why shouldn't we read about gnomes and pixies and mushrooms that hold the secrets of the universe? Why do we all have to be boring old people wallowing in ennui?
Or maybe we could put it another way—how do you know there isn't gold in that huge fish too big for fishermen to catch? Are you certain your ugly and mean coworker isn't under a curse....or an evil sorcerer himself? Who's to say all those good things that happened to you last week weren't the result of finding that lucky penny on the sidewalk? Did you really just misplace your socks, or are there brownies under the couch? And when you married the love of your life, wasn't it a bit like climbing a secluded tower, Love's First Kiss, and riding off into the sunset all rolled into one?
It's interesting to note that it was scholars who preserved the old fairy tales in writing. Charles Perrault began the trend in the 17th century, and the Brothers Grimm followed in the 19th, recording what for centuries past had existed only in the minds and speech of the people. Fables (shorter fairy tales with morals blatantly attached at the end) had always been written, but fairy tales themselves were, until these chroniclers appeared, purely oral tradition.
The reason is plain—stories of the common people, they offered clearly defined morality, hopefulness, and entertainment beyond the merely mundane, all set in the context of violence, oppression and injustice they knew so well. This isn't the kind of thing that gets written down, because then it would lose its power and its capacity for refuge from the horrors of actual existence.
Fortunately for us, however, they were written down before they dropped forever into the black hole of the Past. Our lives aren't typically as fraught with danger as those of peasants in Medieval Europe or Bushmen in deepest Africa, but they are just as in need of light and even frivolity. We lose sight of the joy of the magical at the risk of losing sight of the joy of life itself. Fairy tales are nothing if they aren't magical, and less than nothing if they aren't sources of the kind of profound joy their protagonists often seem to enjoy.