So why does Santa Claus work with elves? And if they are truly elves of the traditional variety, why are they short and dwarf-like or, in some illustrations, even gnome-like? Why don't Santa's little helpers resemble Legolas?
Apart from the influence of the Victorian Era, whose writers and artists cutesified the entire faerie realm, we have to consider the elves' mythic ancestry, in the countries of northern Europe.
Julesvenn (think Jul / Yule), a gnomish character, plays a Santa Claus-like role in many Scandanavian households. He was said to hide barley stalks around the house, for which I'm certain festive uses could be found. Some stories have him travelling in a cart drawn by Thor's goats, showing his origin in pre-Christian lore. Over time, however, he multiplied into an entire race of creatures, who seem to have characteristics of the traditional, short, hard- working dwarf, the magical, pointy-eared elf, and the generic, everywhere-and-nowhere household spirit. Popular lore puts these julnissen (Norway) or julenissen (Denmark) or juletomten (Sweden) or Juul Nisse* in attics and cupboards and other hidden places of the households in Scandanavia. As a kind of rent payment, I suppose, they hide presents around the home on Christmas Eve, to be discovered in the morning.
These creatures remain popular in both countries though, like Italy's La Befana and other ethnic Yuletide figures, they are in retreat, due to the pervasiveness of American media and its version of Kriss Kringle. The julnissen seem most likely to survive, because they've been incorporated into this dominant mythology as Santa's cute elvish helpers.
Thanks to liveforever for a clarification of which word for these creatures belongs to which language.
toalight, however, writes, "in Norway it's Julenissen, same as in Denmark. And I always thought the Danes called him Julemanden, but that's another story."