A folk tale is thought to have originated in the oral tradition, passed down from generation to generation through word of mouth. Because of this, authors of folk tales are unknown. The stories usually focus on a basic world that readers can relate to. Some examples of folk tales are "Hansel and Gretel," "Rapunzel" and "Little Red Cap" or, as it is more commonly called, "Little Red Riding Hood."
A fairy tale is an imaginative story that contains often fantastical or unrealistic elements in an otherwise familiar world. Often fairy tales create entire worlds or laws. Two of the most famous examples are "Cinderella" and "Snow White and the Seven Dwarves." Hans Christian Andersen penned many famous tales like "The Little Mermaid," "The Princess and the Pea" and "Thumbelina."
When reading a folk tale, you can expect mythical or religious elements. Folk tales usually deal with the more ordinary aspects of everyday life. Because of this, characters are usually everyday people like farmers, peasants or their superiors. Sometimes there may be animals with human characteristics that are characters as well. Some folk tales can be lewd and violent in nature, but still carry the theme of good triumphing over evil.
Fairy tales usually have a predictable plot outline: A villain is wreaking havoc on the innocent. Somehow by the end of the tale, good is victorious over evil and there is a sense that of all the characters will "live happily ever after," though in original form, that wasn't always the case. Some characters that may be seen in a fairy tale are fairies, fairy godmothers, giants or creatures that are mystical in nature.