A story is usually classified as a legend if it has some basis in historical fact. Legends are often passed down through successive generations and tend to have significant cultural meaning. They are often contrasted with myths and folktales.
Some other defining characteristics of legends include their setting in the real world and their reference to human characters or heroes. Homer's "Odyssey" is an example of a legend from Ancient Greece.
Unlike legends, stories classed as folktales are not typically based on fact. They may be set in the real world or some other fictional world, and can take place during any time period. They tend to be read aloud, with narrators adapting their contents to specific audiences. They are able to do this because of the universal themes that are common to folktales.
Myths are similar to legends in many respects, such as their perceived basis in historical fact. However, myths generally feature supernatural elements, such as gods, goddesses and other non-human entities. Another defining feature of myths is that they often take place in the distant past. Whereas legends tell the stories of notable or heroic humans, myths, such as "Theogony," are commonly the accounts of creation by divine beings.