In times immemorial, long before written history begins, humanity was but a new race in the world. In those days the world was much wilder and much of it ruled by creatures that no longer exist. Other parts were ruled by what is today known as True Fae, an ageless race of magically attuned beings.
It so happened that some of those beings took a keen interest in tribes of humans settled near them, and offered them a pact. In exchange for their service, for a millennium and a day, they would share their blood with the tribe, granting them the a share of their powers. Many decided to accept the bargain, and so were changed by the magic-infused Fae blood. They became ageless and attuned to magic as they served out their part of the bargain.
So the elves were born, capable of mingling with Human and Fae alike. As elves mingled with humans and diluted the Fae blood from generation to generation, so did the blood's gifts wane. Today elves range from those few ageless ancients who still remain to those whose lifespan barely reaches two centuries. While the dilution can progress further, many call those Half-Elf, to denote they have little more Fae blood than a regular human.