Fairy vs. faerie — which is the correct spelling?
As others have noted, fairy is the standard modern spelling, and faerie is a pseudo-archaism.
However, in some contexts there is now a semantic distinction between the two spellings! In particular, fairy tales and the associated idea of fairies typically refer to the genre of folk stories printed by the Brothers Grimm, then sweetened and popularized for modern audiences by Disney et al. Faerie stories, on the other hand, are stories about the fae: otherworldly, unpredictable, and dangerous creatures who appear in the folk-tales and myths of England and Ireland. In origin, of course, the fairies and the fae are one and the same, but the connotations and usage of the words today are headed in opposite directions.
A Google image search for fairy vs. faerie shows a lot of overlap, but some very significant differences in tone and content between the two terms. Note that the search for "fairy" turns up a number of simple cartoon drawings and classical, idealized figures, while the search for "faerie" has a higher proportion of non-human and sexualized figures.
Here we have a difference between sources: the New Oxford American Dictionary reports faerie (and faery) as “late 16th century (introduced by Spenser): pseudoarchaic variant of fairy”. On the other hand, etymonline has “ supernatural kingdom, "Elfland," by late 14th century, from Old French”.
At least one available data point weighs, to me, in favour of etymonline (and thus against NOAD): Oberon, the faery prince: A masqve of prince Henries was first published in 1616.
Going further, I looked at the French féerie, which derives from Old French faerie (circa 1188), itself from fae (modern writing: fée) (1140), itself from Latin fata (deities of destiny, or Parcae). This is unlike fate itself, which comes from Latin fatum, -a, (“oracle, prediction”).
So, fairy, fay, faeries, farye and the Fates comes from the same Latin root fata, while fate itself comes from the different fatum, -a. Blows my mind!
I would say the former is correct in modern usage, a descendant of the latter which is seemingly from Old French / Middle English.
From The free dictionary:
The current usage difference is that fairy is the mythical creature, and faerie is the world of fairies. However, Brian Froud, who is considered to be the main authority of fairies, nearly always uses the archaic form faery or faeries. I personally like to use the old form, but my spell-checker doesn't like it, ha.
Anyway, not a linguist here, but rather a fairy enthusiast, who's read the etymology of the word a number of times in my studies.
Fairy is most definitely the more modern, Disney-ised version of the derivatives of the ancient word Fae, which represented all folk in the realm of nature spirits. Faery and Faerie keep this ancient derivative and are used by Faery historians and artists who connect deeply with all aspects of Faery. Fairy is more commonly used by Disney and other sources who turn the realm of Fae into complete fantasy and sometimes nonsensical, childish beings who "only exist in the imagination of the child". Fairy tends to be used to represent modern constructs of Faery, who are often in pink, sparkly clothing with Tiaras and other human attire. Faery represents the light and the dark of the realm of Faery. Not only the dark, as some others present on the internet as the difference of spellings. Faerie or Faery keep the ancient connection to the word Fae, as the modern Faerie world is strongly connected to the ancient. Where as the modern "Fairy" world seems to be completely removed from its ancestry and brought into a more consumer based modern world.