In European folk stories, fairy rings can act as gateways to elfin kingdoms, or as a place for elves to gather together and dance. Other folk stories suggest they are created by fairies as they dance in circles on midsummer night. The area within the circle was often avoided, for fear of angering the fairies.
Fairy rings are actually formed by the mushroom having to spread out from where it first established itself in search of new nutrients in the soil, thereby forming a circle.
Fungi, Fairy Rings, and Father Christmas - The Mythology of Fungi Presidential Address (1998) by Dr Sean Edwards, http://fungus.org.uk/nwfg/funmay98.htm