Folktales are oral stories passed down through generations that use magic and fantasy to explain the natural world or teach moral lessons. There are different types of folktales like trickster tales, fables, pourquoi stories, and fairytales. Common elements among folktales include the rule of threes, themes of good vs evil with good rewarded and evil punished, stock characters like a young heroic protagonist, and settings that are vaguely described to engage the imagination.