"Folklore is the body of expressive culture, including tales, music, dance, legends, oral history, proverbs, jokes, popular beliefs, customs, and so forth within a particular population comprising the traditions (including oral traditions) of that culture, subculture, or group" states Wikipedia. Ghost stories and local legends often fall in this general catagory. Some folklore has a small grain of original truth around which layers of story have been wound. The better the storyteller, the longer the time, and the more it is told the thicker the layers and the farther removed one is from the grain of truth at the core.
A paranormal investigator must be able, and willing, to tear away those false layers to find the truth of the tale. Sometimes this is not easy. Sometimes the better story is the one that has evolved over time...embellished and enriched by creative minds for many years. The "truth" may lack excitement or conflict and may be as flat as an old tire.
Some tales are purposely created by the bored or the mischievous. These chronicle things that never happended, or never happened in the manner suggested. Some were "boogyman" tales designed to keep children away from unsafe places. Some were created by criminal types to scare off those who might come around to interfer with their "business" dealings or to simply exert power over those more timid.