There are a lot of types of narrative in folklore — fables, tall tales, anecdotes, and so on — but the three core ones, from an etic perspective, are folktale, legend, and myth. We’ve already talked about the first two of those, so let’s round out the set before we dig more into how these feed into fantasy.
“Myth” has a lot of meanings, depending on context. At its most casual, it means “lie”: anything people sometimes believe, but isn’t really true. “You ever heard that if you eat Pop Rocks and drink Coke, you’ll die? Yeah, that’s just a myth.” Needless to say, this isn’t how folklorists use the term. (And, to be perfectly honest, that usage annoys me. Myths deserve better than to be associated with crap like that!)
More often, people use “myth” — or, more generally, “mythology” — to mean magical stories from people who are gone now. We talk about Norse mythology and Greek mythology and Egyptian mythology, and within those we talk about “the myth of Troy” or “the myth of Hercules” and so on. Sometimes we broaden this a bit to incorporate magical stories from people who are still around: Hindu mythology, for example. This one can get touchy, because of the “lie” usage above; people sometimes take offense at having their stories called mythology, taking the word as an insult. We could just as easily talk about Christian mythology (which on occasion I do, for reasons I’ll get to in a moment), but the pattern is usually that mythology is Other People’s Beliefs — which are, from the speaker’s perspective, untrue. And thus we come back to “myth” = “lie.”
None of these are how folklorists mean the term, as an analytical category. In that technical sense, a myth is a sacred story, believed to be true, which tells the origin of something. This can be the origin of the world as a whole, or of something within the world, an object or a concept or a practice. Pandora’s story and the Garden of Eden are both myths; they tell how evil or sin came to plague us. By contrast, Rudyard Kipling’s “Just So Stories” are concerned with origins, but they’re not sacred, nor believed to be true.
Obviously this is a much narrower definition than most people are used to. A lot of things we call “mythology” aren’t actually myths, from the standpoint of folkloric analysis. Applying this definition isn’t simple, either — starting with the fact that we don’t actually know what the ancient Greeks or whoever believed to be true. Did they actually believe in Pandora and her box? Or, more to the point, how many of them believed in it? (There are debates about when atheism has been a thing and when it hasn’t, but I err on the side of assuming nonbelievers have always existed to one extent or another.)
But the definition has its uses, academically speaking, and it can be handy to keep it in mind for fantasy, too. We invent our worlds; sometimes we invent their origins, too. We’ll dig into that more later, after we talk some about fantasy as a whole.